Made in China: How Much Does it Affect Measures of Competitiveness?

We propose a comprehensive measure of a country's overall competitiveness which accounts for price, non-price and other factors such as changes in the value added content of trade by combining two datasets – highly disaggregated trade data from UN COMTRADE with internationally integrated Supply and Use Tables from the WIOD database. We conclude that advanced economies have lost non-price competitiveness relative to emerging economies over the period 1995 to 2009 when focussing on gross exports. As soon as fragmentation of production is considered, this picture changes. We find that in particular the USA, Canada, Germany and Italy have been able to keep relative quality of their export goods unchanged. Likewise, relative quality improvement of Brazil's, Russia's and India's export goods largely arose due to outsourcing rather than improvements in the quality of domestic production. Nevertheless, gains in Chinese non-price competitiveness remain impressive even after accounting for the role of global value chains.