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The effect of low-wage import competition on U.S. inflationary pressure

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  • Auer, Raphael
  • Fischer, Andreas M.

Abstract

The effect of import competition from low-wage countries on U.S. inflationary pressure is estimated using a new methodology that identifies the causal response of prices to comparative advantage-induced supply shocks in these nations. The results of a panel covering 325 manufacturing industries from 1997 to 2006 show that imports from nine low-wage countries are associated with strong downward pressure on prices. When these nations capture a 1% share of the U.S. sector, the sector's producer prices decrease by 2.35%. Because import competition also influences the skewness of the distribution of price changes, it is likely to have impacted U.S. equilibrium inflation.

Suggested Citation

  • Auer, Raphael & Fischer, Andreas M., 2010. "The effect of low-wage import competition on U.S. inflationary pressure," Journal of Monetary Economics, Elsevier, vol. 57(4), pages 491-503, May.
    • Handle: RePEc:eee:moneco:v:57:y:2010:i:4:p:491-503
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    Keywords

    Low-wage country import competition Comparative advantage Globalization;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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