Tailwinds from the East: How Has the Rising Share of Imports from Emerging Markets Affected Import Prices?

27 Pages Posted: 28 Aug 2014

Date Written: August 22, 2014

Abstract

This paper quantifies the effect of the rising share of imports from emerging market economies (EMEs) on import price inflation in the United Kingdom. It does so using a panel regression approach that accounts for heterogeneity across industries. The key finding is that the rise in China’s import share between 1999 and 2011 is estimated to have lowered UK import price inflation by around 0.5% percentage points per year over the same period – we call this the ‘tailwind from China’. Rising imports from other EME country groups are not found to have any significant impact. Our approach allows us to go further and say that two thirds of the China tailwind arises from the direct impact of importers ‘switching’ to lower cost Chinese goods; the remaining third comes from other exporters lowering their prices in response to strong competition from China. We find no evidence that higher inflation rates in EMEs have so far reduced or reversed the sign of the tailwind yet.

Keywords: Low wage countries, import competition, import price inflation, panel data

JEL Classification: C23, F40

Suggested Citation

Lewis, John and Saleheen, Jumana, Tailwinds from the East: How Has the Rising Share of Imports from Emerging Markets Affected Import Prices? (August 22, 2014). Bank of England Working Paper No. 506, Available at SSRN: https://ssrn.com/abstract=2487803 or http://dx.doi.org/10.2139/ssrn.2487803

John Lewis (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Jumana Saleheen

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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