Modelling trade specialisation of Slovakia and Czechia in automobile industry

Abstract

This paper proposes an innovative approach to modelling trade specialisation of Slovakia and Czechia. These countries have a limited export structure concentrated mainly on machinery and transport equipment that require recent technologies and are subject to continuous automation. We aimed to identify factors that impact Slovakia's and Czechia's performance in the automobile industry on the EU-28 market using the Auto Regressive Distributed Lag Approach. The Vollrath indicator of the revealed competitiveness (Vollrath 1987) demonstrates specialisation, representing a modification of the Balassa index of revealed comparative advantages (Balassa 1965). The paper shows compelling evidence of long-and-short-run asymmetry between trade specialisation and the real effective exchange rate in Slovakia. The results suggest that the Czech competitiveness in the automobile industry does not fall with a higher effective exchange rate. Other factors such as human capital and country size bolster the theoretical assumptions and show the over specialisation of both countries and chances to be less specialised with higher population growth. This paper's findings have a broader context and application for countries focusing primarily on manufacturing road vehicles.

KEYWORDS:

• Specialisation
• revealed comparative advantages
• revealed competitiveness
• asymmetry
• ARDL
• NARDL

JEL Classifications:

• C32
• C3
• C
• F14
• F1
• F

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 2005–2019 is the period of observation in this article.

2 Trade flow/specialisation/revealed competitiveness are used interchangeably in this article.

3 The RCD is the original RCA index introduced by Balassa (1965).

4 The ratio of exports and imports of goods and services to GDP achieved in 2005 almost 148 % for Slovakia and 121 % for Czechia, while in 2019 it was 184 % for Slovakia and 143 % for Czechia.

5 An effective exchange rate combines various bilateral rates into a single indicator.

6 The critical values for the F-Statistic presented by Pesaran, Shin, and Smith (2001) cannot be interpreted for variables integrated of order two.

7 It is to note that the automotive industry which is the key of the analysis in this paper is a part of this section.