The purpose of this paper is to study the relation between Portuguese exports of goods and a set of variables that theoretical models suggest as the main determinants of export behavior. Given that the exchange rate is one of the key variables identified by the theoretical models, we begin by reviewing the evolution of Portugal’s exchange rate policy between the 1977 and 1999, when Portugal joined the European Monetary Union. In addition, we discuss how the exchange rate policy has been related to the issue of competitiveness of Portuguese firms. We then present the theoretical models and proceed to an empirical analysis of their adequacy. The results of our empirical analysis indicate that the perfect competition model does not provide an acceptable representation of the behavior of Portugal's exports of goods. The results improve when the monopolistic competition model is estimated. The estimation of a modified version of the monopolistic competition model suggests that Portugal's exports of goods are very elastic with respect to demand and productivity, but very inelastic with respect to wages. Nevertheless, certain variables are not significant, which indicates that there are problems to be solved either in the theoretical framework or in the empirical approach. The estimates reported support the conclusion that to foster exports a focus on wage costs and on exchange rate fluctuations is probably inefficient or even misguided. Productivity and demand seem to be more important determinants of exports. If one believes in this conclusion, then views

The aim of this paper is to analyze the performance of several models for forecasting exports. We collected data on Portugal’s real exports of goods and on the variables suggested by models based on the assumption of perfect competition and of monopolistic competition. We estimated Vector Autoregressive (VAR) models with those variables and compared the performance of the forecasts produced by those models with the forecasts obtained from simpler, univariate models, namely ARIMA models and Holt’s linear trend model. We consider four alternative frameworks in which the forecasts might be produced. These scenarios correspond to “static forecasts”, “recursive forecasts”, “dynamic forecasts” and “dynamic forecasts with known exogenous variables”. We also consider the computation of recursive forecasts including dummies related to the international financial crisis. The best model (according to the root mean squared error of the forecasts in the period since the start of the international financial crisis) depends on the scenario considered for the computation of the forecasts. The theory-based models do not produce forecasts that are clearly better than the forecasts produced by the simpler univariate models. In addition, the impact of the international financial crisis appears to be better represented by a temporary shock than by a permanent shock (with a constant effect). The results cast doubts on the relevance of traditional measures of competitiveness for the evolution of exports. As a consequence of the above, it is not clear that discussions of competitiveness that put the emphasis on costs, namely on wages, or on the exchange rate provide useful guides to policy.