Low-Wage Import Competition, Inflationary Pressure,and Industry Dynamics in Europe

Raphael Auer, Kathrin Degen and Andreas Fischer ()

No 2011-09, Working Papers from Swiss National Bank

Abstract: What is the impact of import competition from low-wage countries (LWCs) on inflationary pressure in Europe? This paper examines whether labor-intensive exports from emerging Europe, 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 predict that LWC import competition is associated with strong price effects. More specifically, when LWC exporters capture 1% of European market share, producer prices decrease by about 3%. In contrast, no effect is present for import competition from low-wage countries in Central and Eastern Europe. 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: Intra-industry trade; comparative advantage; globalization (search for similar items in EconPapers)
JEL-codes: F11 F12 F14 F16 F40 (search for similar items in EconPapers)
Pages: 66 pages
Date: 2011
New Economics Papers: this item is included in nep-eec, nep-eur, nep-lab and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Low-wage import competition, inflationary pressure, and industry dynamics in Europe (2013)
Working Paper: Low-Wage Import Competition, Inflationary Pressure, and Industry Dynamics in Europe (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:snb:snbwpa:2011-09

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