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Low-wage import competition, inflationary pressure, and industry dynamics in Europe

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  • Auer, Raphael A.
  • Degen, Kathrin
  • Fischer, Andreas M.

Abstract

Have exogenous changes in import competition from low-wage countries (LWCs) brought about changes in inflationary pressure in Europe? This paper examines whether labor-intensive exports from Asia and other global regions have a uniform impact on producer prices in Germany, France, Italy, Sweden, and the United Kingdom. In a panel covering 110 (4-digit) NACE industries from 1995 to 2008, instrumental variable estimations document that LWC import competition is associated with strong price effects. More specifically, when Chinese and other Asian LWC exporters capture 1% of a European market, producer prices decrease by about 3%. Next, decomposing the mechanisms that underlie the LWC price effect on European industry, we show that import competition has a pronounced effect on average productivity and only a muted effect on wages. Owing to the exit of firms and the increase in productivity, LWC import competition is shown to have substantially reduced employment in the European manufacturing sector.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 59 (2013)
Issue (Month): C ()
Pages: 141-166

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Handle: RePEc:eee:eecrev:v:59:y:2013:i:c:p:141-166

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Web page: http://www.elsevier.com/locate/eer

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Keywords: Inflation; Intra-industry trade; Low-wage import competition;

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References

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Raphael A. Auer – Inflationsgefahr am Ende der Ära chinesischer Billigimporte
    by FTD.de in Wirtschaftswunder on 2011-03-03 12:00:00
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Cited by:
  1. Raphael A Auer & Aaron Mehrotra, 2014. "Trade linkages and the globalisation of inflation in Asia and the Pacific," BIS Working Papers 447, Bank for International Settlements.
  2. Holz , Carsten A. & Mehrotra, Aaron, 2014. "Wage and price dynamics in a large emerging economy: The case of China," BOFIT Discussion Papers, Bank of Finland, Institute for Economies in Transition 3/2014, Bank of Finland, Institute for Economies in Transition.
  3. Hirakata, Naohisa & Iwasaki, Yuto & Kawai, Masahiro, 2014. "Emerging Economies' Supply Shocks and Japan's Price Deflation: International Transmissions in a Three-Country DSGE Model," ADBI Working Papers, Asian Development Bank Institute 459, Asian Development Bank Institute.
  4. Lewis, John & Saleheen, Jumana, 2014. "Tailwinds from the East: how has the rising share of imports from emerging markets affected import prices?," Bank of England working papers 506, Bank of England.
  5. Francesco Bianchi & Andrea Civelli, 2013. "Globalization and Inflation: Structural Evidence from a Time Varying VAR Approach," Working Papers, Duke University, Department of Economics 13-20, Duke University, Department of Economics.
  6. Flückiger, Matthias & Ludwig, Markus, 2013. "Chinese Export Competition, Declining Exports and Adjustments at the Industry and Regional Level in Europe," MPRA Paper 48878, University Library of Munich, Germany.

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