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The euro and firm restructuring

  • Matteo Bugamelli

    ()

    (Bank of Italy)

  • Fabiano Schivardi

    ()

    (University of Cagliari and EIEF)

  • Roberta Zizza

    ()

    (Bank of Italy)

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 and International Relations Area 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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