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Home > Research > Working Paper No. 506: Tailwinds from the East: how has the rising share of imports from emerging markets affected import prices? - John Lewis and Jumana Saleheen
 

Working Paper No. 506: Tailwinds from the East: how has the rising share of imports from emerging markets affected import prices? - John Lewis and Jumana Saleheen

22 August 2014

​Working Paper No. 506
Tailwinds from the East: how has the rising share of imports from emerging markets affected import prices?
(883KB)
John Lewis and Jumana Saleheen

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.

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