Costs, knowledge and market structure: understanding the puzzle of international competitiveness with Greek export data

The current study examines the determinants of international competitiveness using export data from for thirteen Greek manufacturing industries over the period 1987-2005. The analysis expands the current empirical trade literature focusing on export drivers other than those of pure cost competitiveness. The paper investigates whether knowledge accumulation and knowledge spillovers can generate export gains. The findings contradict the usual expectations indicating that Greek exports are more sensitive to domestic R&D stock and foreign R&D spillovers. The most effective channel of knowledge transfer is via imports of raw and other materials from more technologically advanced countries. Regarding the measure of cost competitiveness, our decomposition analysis shows that what really matters is productivity and not labour cost reductions. The key policy implication is that Greece’s international competitiveness is associated with product quality rather than simply cost of production.