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

Arbeitspapier

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. Decomposing the mechanisms that underlie the LWC price effect on European industry, we show that import competition has a pronounced effect on average productivity with only a muted effect on wages or margins. 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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 11.02

Classification and Topics

• Classification: Wirtschaft ; Neoclassical Models of Trade ; Models of Trade with Imperfect Competition and Scale Economies; Fragmentation ; Empirical Studies of Trade ; Trade and Labor Market Interactions ; Macroeconomic Aspects of International Trade and Finance: General
• Subject: intra-industry trade ; comparative advantage ; globalization ; Intraindustrieller Handel ; Komparativer Vorteil ; Globalisierung ; Standortwettbewerb ; Europa

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Auer, Raphael ; Degen, Kathrin ; Fischer, Andreas M.
• Event: Veröffentlichung
• (who): Swiss National Bank, Study Center Gerzensee
• (where): Gerzensee
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/128065
• Last update: 10.03.2025, 11:43 AM CET