Factores que otorgan credibilidad y confianza en el proceso

This section provides a very brief discussion of those most commonly used indicators for assessing competitiveness of which the reader might not be very familiar. The first two ones mentioned indicate price competitiveness. They do not enter account for non-price effects of competitiveness such as quality, timely delivery and other such qualitative factors. The trade share indicators mentioned last can be seen as measures taking into account all these effects simultaneously.

Exchange rate. The exchange rate can be seen as a determinant affecting the price competitiveness of a country. From a static point of view, appreciation of the national currency makes exporting more difficult because the price of the domestic good increases when denominated in the currency of the receiving country. On the other hand, imports get cheaper when their prices are expressed in national currency though the country of origin has not altered the price. Various different exchange rates can be used for judging these effects. The nominal one is often used because it is easily available in publications of e.g. central banks. The purchasing power exchange rate is a more realistic one for assessing competitiveness because it takes into account differences in inflation rates in the countries compared. This exchange rate is calculated by multiplying the nominal exchange rate (expressed as domestic currency per unit of foreign currency

Chapter 4 40

known as the price or direct quotation of the exchange rate) by the ratio of foreign inflation rate to that of the domestic economy. As an alternative the real exchange rate defined as the ratio of domestic prices of tradables to that of non-tradables is also in use but rarely found in publications.

For evaluating the impact of exchange rates on competitiveness of a country against many other countries the effective exchange rate is employed. One way of arriving at this indicator is summing up the exchange rates of the various countries by weighing them with the corresponding trade shares. This yields a trade weighted average of these exchange rates. In the current study, the Kuna (HRK) is compared with the currencies of the European Monetary Union, Slovenia and Bosnia-Herzegovina.

Foreign direct investment (FDI). The amount of FDI a country attracts is frequently seen as a sign of competitiveness of that nation as a whole, or of the sector or region attracting the investment. From this point of view, FDI is interpreted as the capability of the host country to pull in mobile international resources in the form of physical capital and know-how. In such a case, it is assumed that a country will attract FDI if it has the advantage of production conditions that the foreign country making such investment is lacking.

However, such an interpretation is only valid if the donor country’s investment is not triggered by trade barriers of the host country making it difficult to export onto this foreign market. Only when local production leads to a more efficient way for penetrating the host country’s market than exports can FDI be interpreted as showing competitiveness of that country. Unfortunately this is not easy to judge.

Domestic resource costs (DRC). The domestic resource costs (DRC) is defined as the opportunity costs of domestic resources required in relation to the shadow value of its traded net outputs. It measures the net foreign exchange effect that domestic resources generate in a particular production activity. A DRC value less (greater) than unity implies that the net benefits of producing domestically are positive (negative). One of the disadvantages of this indicator is that in calculating this ratio by using different prices no adjustment in input structure is made though relative prices differ.

Revealed Comparative Export Advantage Index (RXA). The RXA is used to measure competitiveness as revealed in trade and defined by equation (1):

(1) =

∑

∑

∑ ∑

In equation (1) above, X refers to exports. The subscripts i and k denote product categories while j and l indicate country categories. The numerator presents the

Competitiveness of Croatia’s economy, agriculture with emphasis on the dairy sector 41

share of Croatia’s exports of product i in its total merchandise exports. The denominator expresses for all reference countries the share of exports of this product in total merchandise exports. In this study the RXA is calculated by having the country as well as the commodity considered simultaneously included in both the numerator and the denominator of the index. The interpretation of the indices is as follows. Values of RXA above unity suggest that the country has a competitive advantage in the considered product category, whereas values below 1 are indicative of a competitive disadvantage.

The RXA values were checked whether they present comparative advantage. This was done by using a condition by HILLMAN (1980). He derived it under the assumption of homothetic preferences. The Hillman index (HI) is defined as follows (2): (2) =(1− /

∑

∑

∑

∑ ∑

If the HI shown in equation (2) exceeds unity a correspondence between the RXA and comparative advantage prevails. With the subscripts as explained above. This index is made up of three elements (HINLOOPEN and MARREWIJK, 2005):

Market share measured by

∑

l il ij X

X / ,

Degree of export specialization expressed as

∑

k kj ij X

X / ,

Country size depicted by the ratio

∑

∑ ∑

k l kl k

kj X

X / .

The levels of competitiveness as revealed by employing these indicators provide a descriptive assessment. There are no structures of the economy, sector and/or companies under consideration which could allow drawing conclusions for policy advice when these indicators are calculated. This calls for a careful interpretation of the results.