Examples are product differentiation, technological progress, reputation, marketing, or the export readiness of SMEs. For instance, the figure for French firms that export is only 4%, compared with 11% in Germany. Moreover, French export firms are, on average, smaller than German ones. The upshot of this is that competitiveness is enhanced by firms, not in exchange rate markets.
If politicians want to support domestic industries they should do so by increasing the flexibility of labour and product markets through structural reforms, not by interfering with market forces. But let me come back to my original theme – academics and policy-making. When it comes to core monetary policy issues in my current job, my professional background is clearly something I benefit from.