The age of the dragon: Chinese competition and the pricing behavior of the Italian firms

Matteo Bugamelli, Silvia Fabiani () and Enrico Sette

No 4, Working Papers from Department of the Treasury, Ministry of the Economy and of Finance

Abstract: In this paper we use a unique dataset of Italian manufacturing firms that includes firm-level price data to investigate whether increased penetration of Chinese products affects the competitive environment in an advanced country like Italy. Instrumenting import penetration from China to account for potential endogeneity biases, we find that the increase of the penetration of Chinese products has a negative and sizeable causal impact on Italian firms~ price dynamics: firms operating in a sector where such penetration is 10 per cent higher contain output price growth by about 0.35 percentage points per year. In line with the factor proportions hypothesis we show that this impact is stronger on less skill-intensive sectors. Finally, as predicted by the recent theoretical trade literature with heterogeneous firms, we find that, especially in low skill-intensive sectors, less productive firms are the ones that are forced to reduce prices more.

Keywords: import penetration; competition; China; prices and productivity (search for similar items in EconPapers)
JEL-codes: E31 F14 F15 L2 (search for similar items in EconPapers)
Pages: 37
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Citations: View citations in EconPapers (3)

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