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The age of the dragon: Chinese competition and the pricing behavior of the Italian firms

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Author Info

  • Matteo Bugamelli
  • Silvia Fabiani
  • Enrico Sette

Abstract

In this paper we use a unique dataset of Italian manufacturing firms that includes firm-level price data to investigate whether increased penetration of Chinese products affects the competitive environment in an advanced country like Italy. Instrumenting import penetration from China to account for potential endogeneity biases, we find that the increase of the penetration of Chinese products has a negative and sizeable causal impact on Italian firms~ price dynamics: firms operating in a sector where such penetration is 10 per cent higher contain output price growth by about 0.35 percentage points per year. In line with the factor proportions hypothesis we show that this impact is stronger on less skill-intensive sectors. Finally, as predicted by the recent theoretical trade literature with heterogeneous firms, we find that, especially in low skill-intensive sectors, less productive firms are the ones that are forced to reduce prices more.

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Bibliographic Info

Paper provided by Department of the Treasury, Ministry of the Economy and of Finance in its series Working Papers with number 4.

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Length: 37
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Handle: RePEc:itt:wpaper:wp2010-4

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Web page: http://www.dt.tesoro.it
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Related research

Keywords: import penetration; competition; China; prices and productivity;

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Cited by:
  1. Franco Amatori & Matteo Bugamelli & Andrea Colli, 2011. "Italian Firms in History: Size, Technology and Entrepreneurship," Quaderni di storia economica (Economic History Working Papers) 13, Bank of Italy, Economic Research and International Relations Area.
  2. Anna Maria MAYDA & NAKANE Masato & STEINBERG, Chad & YAMADA Hiroyuki, 2012. "Exposure to Low-wage Country Imports and the Growth of Japanese Manufacturing Plants," Discussion papers 12038, Research Institute of Economy, Trade and Industry (RIETI).

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