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Tailwinds from the East: how has the rising share of imports from emerging markets affected import prices?

Author

Listed:
  • Lewis, John

    () (Bank of England)

  • Saleheen, Jumana

    () (Bank of England)

Abstract

This paper quantifies the effect of the rising share of imports from emerging market economies (EMEs) on import price inflation in the United Kingdom. It does so using a panel regression approach that accounts for heterogeneity across industries. The key finding is that the rise in China’s import share between 1999 and 2011 is estimated to have lowered UK import price inflation by around 0.5 percentage points per year over the same period – we call this the ‘tailwind from China’. Rising imports from other EME country groups are not found to have any significant impact. Our approach allows us to go further and say that two thirds of the China tailwind arises from the direct impact of importers ‘switching’ to lower cost Chinese goods; the remaining third comes from other exporters lowering their prices in response to strong competition from China. We find no evidence that higher inflation rates in EMEs have so far reduced or reversed the sign of the tailwind yet.

Suggested Citation

  • Lewis, John & Saleheen, Jumana, 2014. "Tailwinds from the East: how has the rising share of imports from emerging markets affected import prices?," Bank of England working papers 506, Bank of England.
  • Handle: RePEc:boe:boeewp:0506
    as

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    References listed on IDEAS

    as
    1. 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.
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    Cited by:

    1. William Gatt, 2016. "Time variation, asymmetry and threshold effect in Malta's Phillips curve," CBM Working Papers WP/02/2016, Central Bank of Malta.
    2. Owen Grech & Noel Rapa, 2016. "STREAM: A structural macro-econometric model of the Maltese economy," CBM Working Papers WP/01/2016, Central Bank of Malta.

    More about this item

    Keywords

    Low wage countries; import competition; import price inflation; panel data;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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