consolidate market shares when demand is low. The US, and to a lesser extent Germany, Mexico and Korea seem to have this feature (this was also the case for countries in group 1). These countries, except Japan also exhibit a low variability of export growth, possibly driven by a well-diversified export structure. Japan exhibits a much higher variability of export growth due to the fact that the country combines a pro-cyclical sectoral pull effect with a relatively high degree of specialization. The US has the lowest variability of export growth in the world possibly due to its diversification and to the fact that it performs better when the world markets are struggling (negative 1-2). The generally low variability of export growth also means that these countries export performances are dominated by the common world factors – this is common also to countries in groups 1 and 3.

**Table 5: Variance and covariance analysis of countries performance (2006q1-2013q1)**

||**G**|**G**||<br>**VARIA**|<br>**NCE**|<br>|||**COVAR**|**IANCE**|||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
||**roup**|**var()**|**(Gworld)**<br>**(1)**|**(Gmktsh)**<br>**(2)**|**(Gsec)**<br>**(3)**|<br>**(Ggeo)**<br>**(4)**|**(1)-(2)**|**(1)-(3)**|**(1)-(4)**|**(2)-(3)**|**(2)-(4)**|**(3)-(4)**|
|CA|1|**0.00184**|**127%**|**45%**|12%|**22%**|-68%|1%|13%|6%|-44%|-13%|
|RU|1|**0.00178**|**131%**|**108%**|**34%**|3%|-91%|-102%|21%|17%|-11%|-10%|
|SA|1|**0.00165**|**141%**|**163%**|**68%**|9%|-39%|-127%|-33%|-80%|-25%|**22%**|
|AU|1|**0.00137**|**170%**|**162%**|**28%**|**12%**|-180%|-34%|-19%|-45%|15%|-10%|
|ID|1|**0.00105**|**223%**|**129%**|**44%**|11%|-234%|-119%|-3%|**36%**|2%|11%|
|IN|1|**0.00757**|**31%**|**101%**|**19%**|1%|-76%|-35%|2%|**73%**|-13%|-3%|
|AR|2|**0.01358**|**17%**|**76%**|7%|3%|**8%**|-3%|2%|-9%|4%|-3%|
|BR|2|**0.01000**|**23%**|**60%**|5%|2%|**8%**|0%|2%|-10%|8%|-2%|
|ZA|2|**0.00538**|**43%**|**75%**|**25%**|3%|**12%**|-2%|-5%|-27%|-2%|2%|
|CN|2|**0.01181**|**20%**|**15%**|10%|1%|**10%**|5%|2%|6%|3%|2%|
|ES|3|**0.00695**|**34%**|**30%**|4%|4%|**7%**|0%|-3%|4%|5%|1%|
|IT|3|**0.00474**|**49%**|**25%**|6%|2%|**14%**|-1%|0%|-5%|3%|-2%|
|TR|3|**0.00469**|**50%**|**26%**|5%|3%|**8%**|1%|1%|1%|0%|-2%|
|GB|3|**0.00453**|**51%**|**17%**|1%|4%|**14%**|2%|-4%|1%|0%|1%|
|FR|3|**0.00411**|**57%**|**17%**|3%|4%|4%|2%|-4%|2%|5%|0%|
|JP|4|**0.00705**|**33%**|**17%**|8%|5%|2%|**14%**|3%|1%|-1%|0%|
|KR|4|**0.00475**|**49%**|**13%**|7%|11%|-6%|**11%**|4%|-2%|-1%|3%|
|MX|4|**0.00394**|**59%**|**16%**|11%|11%|-5%|**10%**|3%|1%|-3%|-5%|
|DE|4|**0.00345**|**68%**|6%|6%|4%|-6%|**14%**|1%|-2%|0%|1%|
|US|4|**0.00271**|**86%**|**15%**|5%|3%|-11%|**7%**|3%|1%|-3%|-1%|
|_WORLD_||**_0.00233_**|_100%_|_0%_|_0%_|_0%_|_0%_|_0%_|_0%_|_0%_|_0%_|_0%_|

# **4.2. Euro zone crisis and competitiveness**

The indicators computed in this paper can also be used to assess the causes of uncompetitiveness. We do so by looking at the Eurozone’s periphery.

Some economists view the Eurozone crisis as driven by the deteriorating competitiveness of periphery countries (see Chen et al. 2012). Specifically, some analysts suggest that low competitiveness in the south is driven by exceptional growth of unit labour costs (Dadush and Stancil 2011). According to this view, increases of wage costs adjusted for productivity differences, or in short adjusted wage costs, made the exports of these countries uncompetitive. Policy prescriptions to improve competitiveness that are based on this view have therefore focused on how to regain lost export market shares (see, for example, Dadush and Wyne 2012). Structural reforms may help but they take time. In the shorter term, increasing market shares can be achieved by increasing price competitiveness. Typically this is done by depreciating the currency. Since Eurozone countries cannot devalue their currency, policymakers should instead try to restore competitiveness through internal devaluation, i.e. by reducing adjusted wage costs. One estimate 30