IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

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

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

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.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal European Economic Review.

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

in new window

Handle: RePEc:eee:eecrev:v:59:y:2013:i:c:p:141-166
Contact details of provider: Web page:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Bloom, Nicholas & Draca, Mirko & Van Reenen, John, 2011. "Trade induced technical change? The impact of Chinese imports on innovation, IT and productivity," CEPR Discussion Papers 8236, C.E.P.R. Discussion Papers.
  2. Bernard, Andrew B. & Jensen, J. Bradford & Schott, Peter K., 2006. "Survival of the best fit: Exposure to low-wage countries and the (uneven) growth of U.S. manufacturing plants," Journal of International Economics, Elsevier, vol. 68(1), pages 219-237, January.
  3. Auer, Raphael, 2015. "Exchange Rate Pass-Through, Domestic Competition, and Inflation: Evidence from the 2005/08 Revaluation of the Renminbi," CEPR Discussion Papers 10344, C.E.P.R. Discussion Papers.
  4. Donald R. Davis & David E. Weinstein, 1998. "An Account of Global Factor Trade," Harvard Institute of Economic Research Working Papers 1849, Harvard - Institute of Economic Research.
  5. 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) 737, Bank of Italy, Economic Research and International Relations Area.
  6. Wheeler, Tracy, 2008. "Has trade with China affected UK inflation?," Discussion Papers 22, Monetary Policy Committee Unit, Bank of England.
  7. Jing Zhang & Andrei A. Levchenko, 2011. "The Evolution of Comparative Advantage: Measurement and Welfare Implications," 2011 Meeting Papers 302, Society for Economic Dynamics.
  8. John Romalis, 2004. "Factor Proportions and the Structure of Commodity Trade," American Economic Review, American Economic Association, vol. 94(1), pages 67-97, March.
  9. Auer, Raphael & Fischer, Andreas M, 2008. "The Effect of Trade with Low-Income Countries on U.S. Industry," CEPR Discussion Papers 6819, C.E.P.R. Discussion Papers.
  10. Paula Bustos, 2009. "Trade liberalization, exports and technology upgrading: Evidence on the impact of MERCOSUR on Argentinean firms," Economics Working Papers 1173, Department of Economics and Business, Universitat Pompeu Fabra.
  11. Chen, Natalie & Imbs, Jean & Scott, Andrew, 2009. "The dynamics of trade and competition," Journal of International Economics, Elsevier, vol. 77(1), pages 50-62, February.
  12. Amit Khandelwal, 2009. "The Long and Short (of) Quality Ladders," NBER Working Papers 15178, National Bureau of Economic Research, Inc.
  13. Andrew B. Bernard & Stephen J. Redding & Peter K. Schott, 2011. "Multiproduct Firms and Trade Liberalization," The Quarterly Journal of Economics, Oxford University Press, vol. 126(3), pages 1271-1318.
  14. Andrew Atkeson & Ariel Burstein, 2008. "Pricing-to-market, trade costs, and international relative prices," Staff Report 404, Federal Reserve Bank of Minneapolis.
  15. 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.
  16. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  17. Mary Amiti & Jozef G Konings, 2005. "Trade Liberalization, Intermediate Inputs, and Productivity; Evidence from Indonesia," IMF Working Papers 05/146, International Monetary Fund.
  18. James B. Bullard, 2012. "Global output gaps: wave of the future?," Speech 195, Federal Reserve Bank of St. Louis.
  19. Machin, S. & Van Reenen, J., 1997. "Technology and Changes in Skill Structure: Evidence from Seven OECD Countries," Papers 24, Centre for Economic Performance & Institute of Economics.
  20. Raphael Anton Auer & Raphael S. Schoenle, 2012. "Market Structure and Exchange Rate Pass-Through," Working Papers 2012-14, Swiss National Bank.
  21. Nigel Pain & Isabell Koske & Marte Sollie, 2006. "Globalisation and Inflation in the OECD Economies," OECD Economics Department Working Papers 524, OECD Publishing.
  22. David H. Autor & David Dorn & Gordon H. Hanson, 2013. "The China Syndrome: Local Labor Market Effects of Import Competition in the United States," American Economic Review, American Economic Association, vol. 103(6), pages 2121-68, October.
  23. Ottaviano, Gianmarco & Melitz, Marc, 2008. "Market Size, Trade, and Productivity," Scholarly Articles 3229096, Harvard University Department of Economics.
  24. Claudio E. V. Borio & Andrew Filardo, 2007. "Globalisation and inflation: New cross-country evidence on the global determinants of domestic inflation," BIS Working Papers 227, Bank for International Settlements.
  25. Arnaud Costinot & Lindsay Oldenski & James Rauch, 2009. "Adaptation and the Boundary of Multinational Firms," Global COE Hi-Stat Discussion Paper Series gd09-059, Institute of Economic Research, Hitotsubashi University.
  26. Gamber, Edward N & Hung, Juann H, 2001. "Has the Rise in Globalization Reduced U.S. Inflation in the 1990s?," Economic Inquiry, Western Economic Association International, vol. 39(1), pages 58-73, January.
  27. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
  28. repec:fip:fedlps:y:2012:i:march28 is not listed on IDEAS
  29. Julien Martin & Isabelle Méjean, 2011. "Low-wage countries' competition, reallocation across firms and the quality content of exports," PSE - G-MOND WORKING PAPERS halshs-00962485, HAL.
  30. Trefler, Daniel, 1993. "International Factor Price Differences: Leontief Was Right!," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 961-87, December.
  31. Jane E. Ihrig & Steven B. Kamin & Deborah J. Lindner & Jaime R. Marquez, 2007. "Some simple tests of the globalization and inflation hypothesis," International Finance Discussion Papers 891, Board of Governors of the Federal Reserve System (U.S.).
  32. Eugenio Gaiotti, 2010. "Commentary: Has Globalization Changed the Phillips Curve? Firm-Level Evidence on the Effect of Activity on Prices," International Journal of Central Banking, International Journal of Central Banking, vol. 6(1), pages 51-84, March.
  33. Geoffrey M.B. Tootell, 1998. "Globalization and U.S. inflation," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 21-33.
  34. José De Gregorio, 2008. "The Tensions of the World Economy," Economic Policy Papers Central Bank of Chile 27, Central Bank of Chile.
  35. repec:cii:cepiei:2012-q3-131-1 is not listed on IDEAS
  36. Carmen Diaz-Mora, 2008. "What factors determine the outsourcing intensity? A dynamic panel data approach for manufacturing industries," Applied Economics, Taylor & Francis Journals, vol. 40(19), pages 2509-2521.
  37. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, vol. 98(4), pages 1707-21, September.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:eecrev:v:59:y:2013:i:c:p:141-166. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.