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

Raphael Auer, Kathrin Degen and Andreas Fischer (afischer@liuc.it)

European Economic Review, 2013, vol. 59, issue C, 141-166

Abstract: 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.

Keywords: Inflation; Intra-industry trade; Low-wage import competition (search for similar items in EconPapers)
JEL-codes: F11 F12 F14 F16 F40 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (64)

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Related works:
Working Paper: Low-Wage Import Competition, Inflationary Pressure,and Industry Dynamics in Europe (2011)
Working Paper: Low-Wage Import Competition, Inflationary Pressure, and Industry Dynamics in Europe (2011)
Working Paper: Globalization and inflation in Europe (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:59:y:2013:i:c:p:141-166

DOI: 10.1016/j.euroecorev.2012.11.007

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