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Globalization and inflation in Europe

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  • Raphael Auer
  • Kathrin Degen
  • Andreas M. Fischer

Abstract

What is the impact of import competition from other low-wage countries (LWCs) on inflationary pressure in Western Europe? This paper seeks to understand whether labor-intensive exports from emerging Europe, 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, IV estimates predict that LWC import competition is associated with strong price effects. More specifically, when Chinese exporters capture 1 percent of European market share, producer prices decrease about 2 percent. In contrast, no effect is present for import competition from low-wage countries in Central and Eastern Europe.

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Paper provided by Federal Reserve Bank of Dallas in its series Globalization and Monetary Policy Institute Working Paper with number 65.

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Date of creation: 2010
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Handle: RePEc:fip:feddgw:65

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Keywords: International trade - Econometric models ; Labor market ; Inflation (Finance) - Euro area ; Globalization;

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  1. Jane Ihrig & Steven B. Kamin & Deborah Lindner & Jaime Marquez, 2007. "Some simple tests of the globalization and inflation hypothesis," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 891, Board of Governors of the Federal Reserve System (U.S.).
  2. Wheeler, Tracy, 2008. "Has trade with China affected UK inflation?," Discussion Papers, Monetary Policy Committee Unit, Bank of England 22, Monetary Policy Committee Unit, Bank of England.
  3. Marc J. Melitz & Gianmarco I.P. Ottaviano, 2005. "Market Size, Trade, and Productivity," Development Working Papers 201, Centro Studi Luca d\'Agliano, University of Milano.
  4. Chen, Natalie & Imbs, Jean & Scott, Andrew, 2009. "The dynamics of trade and competition," Journal of International Economics, Elsevier, Elsevier, vol. 77(1), pages 50-62, February.
  5. Raphael Anton Auer & Andreas M. Fischer, 2008. "The Effect of Low-Wage Import Competition on U.S. Inflationary Pressure," Working Papers 2008-18, Swiss National Bank.
  6. Nigel Pain & Isabell Koske & Marte Sollie, 2006. "Globalisation and Inflation in the OECD Economies," OECD Economics Department Working Papers 524, OECD Publishing.
  7. Davis, D.R. & Weinstein, D.E., 1999. "An Account of Global Factor Trade," Working Papers, Research Seminar in International Economics, University of Michigan 435, Research Seminar in International Economics, University of Michigan.
  8. Ernst Glatzer & Ernest Gnan & Maria Teresa Valderrama, 2006. "Globalization, Import Prices and Producer Prices in Austria," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 24–43.
  9. Matteo Bugamelli & Silvia Fabiani & Enrico Sette, 2010. "The pro-competitive effect of imports from China: an analysis of firm-level price data," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 737, Bank of Italy, Economic Research and International Relations Area.
  10. John Romalis, 2004. "Factor Proportions and the Structure of Commodity Trade," American Economic Review, American Economic Association, American Economic Association, vol. 94(1), pages 67-97, March.
  11. Geoffrey M.B. Tootell, 1998. "Globalization and U.S. inflation," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 21-33.
  12. Trefler, Daniel, 1993. "International Factor Price Differences: Leontief Was Right!," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 101(6), pages 961-87, December.
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Cited by:
  1. Chevassus-Lozza, Emmanuelle & Gaigne, Carl & Le Mener, Leo, 2012. "Does input trade liberalization boost downstream firms’ exports? Theory and firm-level evidence," Working Papers, Structure and Performance of Agriculture and Agri-products Industry (SPAA) 126946, Structure and Performance of Agriculture and Agri-products Industry (SPAA).
  2. Raphael Auer, 2011. "Exchange rate pass-through, domestic competition and inflation -- evidence from the 2005/08 revaluation of the Renminbi," Globalization and Monetary Policy Institute Working Paper, Federal Reserve Bank of Dallas 68, Federal Reserve Bank of Dallas.
  3. Harchaoui, Tarek M., 2012. "The Europe-U.S. Retail Trade Productivity Gap in a Rear-view Mirror," GGDC Research Memorandum, Groningen Growth and Development Centre, University of Groningen GD-127, Groningen Growth and Development Centre, University of Groningen.

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