Is the emphasis on unit labor costs an effective export-promoting policy? A comparison between Greece and Portugal.

The aim of this paper is to assess whether internal devaluation is a sufficient measure to improve industrial exports competitiveness. Focusing on the cases of Greece and Portugal, two small open economies, which have recently experienced major corrective policies in the context of Memoranda of Understanding, we aim at explaining the differences observed regarding the growth of industrial exports in the two countries during the period 2000 to date. Our findings point to a number of cost items other than the unit labor cost that have increased the prices of specific categories of goods exports. Over and above that, however, the higher growth of Portuguese manufacturing exports relative to those of Greece may be explained by a variety of structural weaknesses of the Greek economy leading to its inability to retain international market shares and imposing constraints on the domestic industrial base. [ABSTRACT FROM AUTHOR]