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The euro and firm restructuring

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Author Info
Matteo Bugamelli () (Bank of Italy)
Fabiano Schivardi () (University of Cagliari and EIEF)
Roberta Zizza () (Bank of Italy)

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Abstract

We test whether and how the adoption of the euro, narrowly defined as the end of competitive devaluations, has affected member states’ productive structures, distinguishing between within and across sector reallocation. We find evidence that the euro has been accompanied by a reallocation of activity within rather than across sectors. Since its adoption, productivity growth has been relatively stronger in country-sectors that once relied more on competitive devaluations to regain price competitiveness. This effect is robust to potential omitted-variable bias and correlated effects. Firm-level evidence from Italian manufacturing confirms that low-tech businesses, which arguably benefited most from devaluations, have been restructuring more since the adoption of the euro. Restructuring has entailed a shift of business focus from production to upstream and downstream activities, such as product design, advertising, marketing and distribution, and a corresponding reduction in the share of blue collar workers.

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Paper provided by Bank of Italy, Economic Research Department in its series Temi di discussione (Economic working papers) with number 716.

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Date of creation: Jun 2009
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Handle: RePEc:bdi:wptemi:td_716_09

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Related research
Keywords: euro; devaluations; productivity growth; firm restructuring; skill intensity;

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Find related papers by JEL classification:
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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References listed on IDEAS
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Cited by:
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  1. Alberto Alesina & Silvia Ardagna & Vincenzo Galasso, 2008. "The Euro and Structural Reforms," Working Papers 344, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
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