Dissecting the Impact of Imports from Low-Wage Countries on French Consumer Prices

Abstract

We provide a quantitative assessment of the impact of imports from low-wage countries (LWCs) on CPI inflation in France during 1994-2014, using detailed micro data on imports and exports. The share of imports from low-wage countries in consumption increased from about 2% to 7%, and resulted in a negative impact on CPI inflation of about 0.17 pp per year on average. This effect decomposes in three channels. 1) The substitution channel, capturing the replacement of domestic production by goods from LWCs, accounts for almost -0.05 pp. 2) The rise in the proportion of LWC goods in total imports weighed down on imported inflation. This channel reduced French CPI inflation by 0.06 pp per year. 3) Instrumental variable estimation of the competition channel at the product level shows that the increase in the market share of LWCs in French expenditures led to a negative effect of 0.06 pp on CPI inflation.

Firm Heterogeneity and Trade in EU Countries: A Cross-Country Analysis

“…It can indeed lead to lower prices of consumer goods, which especially favours low-and middle-income groups who spend a larger share of their disposable income on standardised consumer items (see, for example, Broda and Weinstein, 2006;Carluccio, Gautier and Guilloux-Nefussi, 2018;Jaravel and Sager, 2018), and more generally leads to a greater variety of goods and services for all consumers. The analysis of these effects, however, goes beyond the scope of this paper.…”

The Implications of Globalisation for the ECB Monetary Policy Strategy

“…This change in expenditure patterns affects the inflation rate of the euro area directly: the more imported goods the consumption basket includes, the more the inflation rates of these goods will matter for the determination of inflation. Therefore, what affects the HICP is the inflation differential between goods imported from LWCs and domestic goods: if their inflation rates are similar, the evolution of the HICP remains unchanged, even when the share of each 38 Low-wage countries are defined as countries for which GDP per capita is less than 75% of French GDP per capita, in line with Carluccio et al (2018), taking the average over the period 1994-2014. The composition of groups is fixed over time.…”

“…These techniques allow the elasticity of domestic producer price index (PPI) inflation to LWC import penetration to be estimated. This is specifically a measure of the percentage change in PPI inflation that can be attributed to changes in imports from LWCs (Auer et al, 2013;Carluccio et al, 2018). Carluccio et al (2018) estimate an elasticity of domestic PPI inflation to LWC import penetration for France of 1.21.…”

“…This is specifically a measure of the percentage change in PPI inflation that can be attributed to changes in imports from LWCs (Auer et al, 2013;Carluccio et al, 2018). Carluccio et al (2018) estimate an elasticity of domestic PPI inflation to LWC import penetration for France of 1.21. 44 Using this elasticity to estimate the competition effects as measured in the second term of equation ( 1), imports of goods from LWCs reduced euro area CPI inflation by 0.16 percentage points per year on average during the period under review.…”

“…The expenditure data come from EUROSTAT and are aggregated at the three-digit level of the Classification of Individual Consumption by Purpose (COICOP, 47 sectors). We use a table of concordance between the two classifications as detailed in Carluccio et al (2018).…”