The Pro-Competitive Effect of Imports from China: An Analysis of Firm-Level Price Data

54 Pages Posted: 12 May 2010

Date Written: January 11, 2010

Abstract

The entry of China into world markets has been one of the strongest recent shocks to world trade and advanced countries' industrial sectors. This is particularly true for Italy where labour-intensive, low-technology production represents a large share of output. Using Italian manufacturing firm-level data on output prices over the period 1990-2006, we test whether increased import competition from China has affected firms’ pricing strategies causing a reduction in the dynamics of prices and markups. After controlling for other price determinants (demand and cost, domestic competition and import penetration), we find that this is indeed the case. Comparing China’s share of world exports to Italy with China’s total world export market share proves the causal nature of the relationship we find. Inspired by and in line with recent advances in the literature on international trade, we also show that the price effects of Chinese competitive pressures are stronger in less technologically advanced sectors and, within these sectors, on smaller firms.

Keywords: import competition, China, firms' prices and productivity

JEL Classification: F14, F15, L2, E31

Suggested Citation

Bugamelli, Matteo and Fabiani, Silvia and Sette, Enrico, The Pro-Competitive Effect of Imports from China: An Analysis of Firm-Level Price Data (January 11, 2010). Bank of Italy Temi di Discussione (Working Paper) No. 737. Available at SSRN: https://ssrn.com/abstract=1601933 or http://dx.doi.org/10.2139/ssrn.1601933

Matteo Bugamelli (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Silvia Fabiani

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Enrico Sette

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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