DP8130 Globalization and Inflation in Europe
Author(s): | Raphael Auer, Kathrin Degen, Andreas M Fischer |
Publication Date: | December 2010 |
Keyword(s): | comparative advantage, globalization, intra-industry trade |
JEL(s): | F11, F12, F14, F16, F40 |
Programme Areas: | International Macroeconomics |
Link to this Page: | cepr.org/active/publications/discussion_papers/dp.php?dpno=8130 |
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.