Template-type: ReDIF-Paper 1.0
Author-Name: Raphael A. Auer
Author-Name-First: Raphael A.
Author-Name-Last: Auer
Author-Person: pau28
Author-Name: Andreas M. Fischer
Author-Name-First: Andreas M.
Author-Name-Last: Fischer
Author-Person: pfi23
Title: The Effect of Low-Wage Import Competition on U.S. Inflationary Pressure
Abstract: This paper develops a new methodology to estimate the effect of low-wage import competition on U.S. producer prices. We first document that when low-wage countries grow, their exports to the United States increase most in labor-intensive sectors. Second, we demonstrate that the temporary and relative component of imports induced by labor intensity and output growth in low-wage countries is orthogonal to U.S. supply and demand shocks and can, therefore, be utilized to identify the causal impact of import competition on prices. In a panel covering 325 manufacturing industries from 1997 to 2006, we find that imports from nine low-wage countries are associated with strong downward pressure on U.S. prices. When these nations capture 1% U.S. market share, producer prices decrease by 3.1%, which is nearly fully accounted by a 2.4% increase in labor productivity and a 0.4% decrease in markups. Overall, we find that imports from the examined countries have decreased U.S. manufacturing PPI inflation by around two percentage points each year.
Length: 51 pages
Creation-Date: 2008
Contact-Email: forschung@snb.ch
File-URL: https://www.snb.ch/en/publications/research/working-papers/2008/working_paper_2008_18
File-Format: text/html
Number: 2008-18
Classification-JEL: F14, F15, F16
Keywords: Low-Wage Country Import Competition, Comparative Advantage, Globalization
Handle: RePEc:snb:snbwpa:2008-18