The official site of Italy's central bank

No. 634 - Export prices, product quality and firms' characteristics: An analysis on a sample of Italian firms

The unsatisfactory performance of Italian export volumes in the last decade has been attributed to three factors: the product specialization still centered around traditional sectors, the small firm size and the exceptional rise in export unit values. This paper analyzes the latter with the aim of testing three alternative hypotheses: i) measurement error; ii) composition effect: globalization forcing the exit of less productive firms producing low quality goods would have raised the average quality and thus prices of exported goods; iii) pricing strategies: Italian firms would have maximized profit margins sacrificing volumes. On the basis of sample data on price variations by destination market at the firm-level, we find that: a) in the last decade (1996-2005), export unit values have overestimated export price dynamics by 2 percentage points on average every year; b) on the basis of our new export prices, the Italian loss in world market share has been smaller, but still larger as compared to France and Germany; c) the composition effect has had a limited role.