Innovation and competitiveness: trends in unit prices in global trade

This paper examines trends in the price of globally traded products, and explores whether the degree of price fall reflects the technological content of different sectors. It tries to reflect the dynamic process of shifting competitive advantages in the global economy by analysing the unit price of EU’s imports of manufactures over the period 1988-2002, at a 2-, 4-, and 6-digit level of product aggregation. Focusing on changes in prices, rather than the conventional static price analysis, the authors conclude that the higher the degree of disaggregation, the greater the incidence of price trends. The authors nevertheless note that the data has to be taken with caution given the short duration of the database (1988-2002), and due to the patchiness of the EU COMEXT database, reducing the number of sectors for which statistical analysis can be made.

The authors nevertheless do observe some linkages between unit price trends and innovation – greater innovation reduces the tendency for prices to fall. The findings also sustain the hypothesis that the higher the technological content the smaller the number of sectors with declining unit prices. I.e. engineering and high-tech sectors show no evidence of declining prices, while resource- and low-tech sectors do. Also, there appears to be a relationship between prices and innovation input at all levels of aggregation. A correspondence between innovation and price trends at high levels of aggregation and with large samples is also observed.

The authors note that Neven’s multi-factor taxonomy provides mixed support for the hypothesis since high-tech/high human capital and labour intensive and labour/capital intensive sectors all experience a low incidence of price falls. Finally, the authors note that there are no discernable differences arising from the use of the OECD process and Marsili taxonomies.