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Title: Globalization and Inflation in Europe

Author(s): Raphael Auer, Kathrin Degen and Andreas M Fischer

Publication Date: December 2010

Keyword(s): comparative advantage, globalization and intra-industry trade

Programme Area(s): International Macroeconomics

Abstract: What is the impact of import competition from other low-wage countries (LWCs) on inflationary pressure in Western Europe? This paper seeks to understand 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, IV estimates predict that LWC import competition is associated with strong price effects. More specifically, when Chinese exporters capture 1% of European market share, producer prices decrease about 2%. In contrast, no effect is present for import competition from low-wage countries in Central and Eastern Europe.

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Bibliographic Reference

Auer, R, Degen, K and Fischer, A. 2010. 'Globalization and Inflation in Europe'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=8130