China’s competition and the export price strategies of developed countries

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper analyzes the impact of Chinese competition on developed countries export prices, with a focus on Italy. After a theoretical discussion of the channels affecting export prices in presence of competitors from low income countries, we estimate the pricing behavior of two major manufacturing sectors, consumer goods and machinery, distinguishing destination markets according to their income level. Results show that export competition from China has affected Italian price strategies over the period 2000-08, in an idiosyncratic way according to the income level of importers, sector and technology level of products exported. Contrary to what observed for other high-income countries, we find that Italy has followed a very specific strategy to face Chinese competition. Instead of changing "between sector", moving up to the technology ladder, Italy has kept its specialization in traditional sectors and has upgraded the quality of its low-tech and laborintensive products, when in direct competition with Chinese ones. For higher technology products, on the other hand, it has adjusted prices downward to reduce Chinese competitive pressure, especially in segments where it does not hold a comparative advantage, while it has fostered differentiation only for some niche products within the sectors with higher specialization. Terms of use: Documents in JEL:F10, F14 Keywords: China, export price competition, Italy Abstract This paper analyzes the impact of Chinese competition on developed countries export prices, with a focus on Italy. After a theoretical discussion of the channels affecting export prices in presence of competitors from low income countries, we estimate the pricing behavior of two major manufacturing sectors, consumer goods and machinery, distinguishing destination markets according to their income level. Results show that export competition from China has affected Italian price strategies over the period 2000-08, in an idiosyncratic way according to the income level of importers, sector and technology level of products exported. Contrary to what observed for other high-income countries, we find that Italy has followed a very specific strategy to face Chinese competition. Instead of changing "between sector", moving up to the technology ladder, Italy has kept its specialization in traditional sectors and has upgraded the quality of its low-tech and laborintensive products, when in direct competition with Chinese ones. For higher technology product...

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“…33 Several studies suggest that the "China shock" and, more generally, the increasing competition of low-wage countries did indeed have a significant impact on advanced economies (for a survey, see Autor, Dorn and Hanson, 2016). Focusing on Italy, there is evidence of an impact on sector-level productivity (Bugamelli and Rosolia, 2006;Bugamelli, Schivardi and Zizza, 2009), on firms' pricing strategies (Bugamelli, Fabiani and Sette, 2015), on output and employment in the manufacturing sector, including inter-sectoral effects via input-output linkages (Federico 2014), on exports (Giovannetti, Sanfilippo and Velucchi, 2011) and on export unit values (Giovannetti and Sanfilippo, 2016). 34 The analysis is based on more than 4,500 products defined at the HS 6-digit level.…”