Does Value Chain Integration Dampen Producer Price Developments? Evidence from the European Union

We draw on trade theory to empirically explore the effects of value chain integration on producer price dynamics. Using the EU as an example of an integrated area, we construct measures of backward and forward linkages with intra- and extra-EU trading partners at the country-sector level. We find that especially upstream integration and EU-accession dampen inflation. The results for downstream integration indicate a priceincreasing relationship. We propose novel EU integration indicators and offer insights to both theory and applied research. We also add to the policy debate on the price effects of (dis-)integration of EU countries.

Keywords: inflation, EU integration, Single Market, producer prices, value chains

JEL Classification: E31, F15, O52

Suggested Citation: Suggested Citation

Friesenbichler, Klaus and Kuegler, Agnes and Reinstaller, Andreas, Does Value Chain Integration Dampen Producer Price Developments? Evidence from the European Union (June 11, 2020). Available at SSRN: https://ssrn.com/abstract=3625451 or http://dx.doi.org/10.2139/ssrn.3625451