Matteo Bugamelli

Pricing-to-Market and Market Structure*

Stimulated by imperfect competition/sticky prices framework of the new open economy macroeconomics, empirical research has reconsidered the role of exchange rates in international adjustment. This paper reassesses the link between exchange rates and traded good prices by estimating pricing‐to‐market equations for the five main euro area countries over the period 1990–99. We minimize selection biases by keeping all manufacturing products and all destination markets and show that exchange rate pass‐through (ERPT) is much larger, almost complete, than previously estimated. Thanks to a huge variability in terms of exchange rate variations, products and destination markets, we can map differences in ERPT into market structures and, at the same time, reconcile our results with the empirical literature. We find that ERPT is highly incomplete for sales by oligopolistic industries into advanced economies, indeed in the order of 50–60% as previously estimated. ERPT is instead almost complete in emerging and developing economies where therefore exchange rate movements can help adjust external imbalances. We also find that ERPT is largely asymmetric: it is almost complete after an appreciation of the exporters currency, rather incomplete after a depreciation. This result is very robust across specifications.

The Pro-Competitive Effect of Imports from China: An Analysis of Firm-Level Price Data

The entry of China into world markets has been one of the strongest recent shocks to world trade and advanced countries industrial sectors. This is particularly true for Italy where labour-intensive, low-technology production represents a large share of output. Using Italian manufacturing firm-level data on output prices over the period 1990-2006, we test whether increased import competition from China has affected firms’ pricing strategies causing a reduction in the dynamics of prices and markups. After controlling for other price determinants (demand and cost, domestic competition and import penetration), we find that this is indeed the case. Comparing China’s share of world exports to Italy with China’s total world export market share proves the causal nature of the relationship we find. Inspired by and in line with recent advances in the literature on international trade, we also show that the price effects of Chinese competitive pressures are stronger in less technologically advanced sectors and, within these sectors, on smaller firms.

Welcome to the Machine: Firms' Reaction to Low-Skilled Immigration

We assess the impact of low-skilled immigration on capital intensity. We first present a model characterized by frictions in the labor market and firms asymmetric information on workers skills and show that firms can react to the immigration-induced reduction of their workforces skill level by increasing the capital-labor ratio. We test the predictions of the model on a sample of Italian manufacturing firms over the period 1996-2007, finding that increased immigration of low-skilled workers from developing countries, measured at the provincial level and instrumented with pre-existing enclaves of immigrants and network effects, raises capital intensity. In line with the predictions of the theoretical model, the impact of immigration, which is quite robust across empirical specifications, is stronger for larger firms and in skill-intensive sectors.

Italian Firms in History: Size, Technology and Entrepreneurship

The economic performance of a country depends, among other things, on the strategies and structures of its firms. In the framework that is designed by institutions and policies and determined by technology and macroeconomic cycles, entrepreneurs decide how to allocate available resources in order to face off competitors and to hook up with demand cycles. This paper looks at the evolution of the Italian economy across the last 150 years from a business history perspective. Analyzing Italian firms over the long-term cycles of the global economy and with respect to the different paradigms of the three industrial revolutions, we identify some structural features that explain successes and failures of the Italian economy. In doing this we explicitly connect the micro level of the business enterprise to the macro one of the national business system and explain the comparatively good performance of the Italian economy from the end of the 19th century to the 1970s. Over the last three decades this performance has turned negative, highlighting the role played by the small average size of firms and the failure of institutions to provide incentives for growth.

Are Firms Exporting to China and India Different from Other Exporters

This chapter asks if and why advanced countries differ in their ability to export to China and India. To this end we exploit a newly collected, comparable cross-country dataset (EFIGE) obtained from a survey of 15,000 manufacturing firms in Austria, France, Germany, Hungary, Italy, Spain and the United Kingdom. The EFIGE dataset contains detailed information on firms international activities as well as firm characteristics such as size and productivity, governance and management structure, workforce, innovation and research activity. We study both the extensive and intensive margins of exports and identify firm characteristics that are positively or negatively correlated with exporting activity tout court and with exporting to China and India conditional on being an exporter. We confirm previous rich evidence and show that larger, more productive, and more innovative firms are more likely to become exporters and export more. We also provide some new evidence on the role of governance and management: while there does not seem to be a strong negative effect of family ownership, we find that a higher percentage of family management reduces a firms export propensity and export volumes. When we turn to exports to China and India, we find that firms exporting there must be on average larger, more productive, and more innovative than firms exporting elsewhere.

Exporters' Pricing Strategies: the Case of Italy

Using Italian data over the period 1990-99, this paper estimates an export pricing equation along the lines traced in the Pricing-to-Market literature on exchange rate pass-through (ERPT). As compared to previous papers, we minimize aggregation and selection biases, by focusing on all destination markets (about 70) and all finely disaggregated products (700, according to the 4-digits of SITC). The results show a lot of heterogeneity. On average, ERPT is largely asymmetric: Italian exporters do not cut their profit margins and thus do not defend their market shares when the lira appreciates; they instead raise prices by about 30 per cent of the exchange variation after a lira depreciation. Distinguishing by markets and products, it emerges an incomplete ERPT in industrial markets and in the case of goods produced in oligopolistic industries (e.g., economies of scale, high-tech). The same occurs in those sectors where firms are on average larger and the evolution of productivity more favourable. In the traditional sectors (textile, clothing, shoes, etc.), and in the developing countries, where Italian presence is more fragmented, ERPT is almost complete and symmetric: this result may be due to entry-exit of small firms in those markets.

Productivity and Foreign Competition

The debate in Italy on the recent disappointing performance of GDP growth has focused on the increasing competitive pressure exerted by firms located in the developing countries and specialized in key product sectors of Italian manufacturing. This paper contributes by explicitly quantifying the effects of this competition on the efficiency of Italian manufacturing firms and sectors. The exercise exploits the exogenous nature of the entry into international markets of competing firms located in developing countries, largely attributable to trade liberalization policies and the initial forms of industrial development. The relation between the developing countriesi?½ market shares and sectoral productivity in Italy, both disaggregated according to the 3-digit Ateco91 classification, is found to be empirically positive. The effect is largely due to a process of creative destruction in which the least efficient firms exit the market and new firms of above-average efficiency enter.

Productivity growth in Italy: a tale of a slow-motion change

Productivity is the main factor holding back long-term economic growth in Italy. Since the second half of the 1990s, productivity growth has been feeble both by historical standards and compared with the other main euro area countries. Understanding the reasons for such a performance and finding the most effective policy levers is crucial to increase Italy’s potential growth rate. Against this background, we provide a detailed analysis of the data and a critical review of the available empirical evidence to identify both the structural weaknesses limiting productivity growth and the strengths of the Italian productive system that may support it looking forward. Since the end of the 1990s and more intensively since the second half of 2011, the reform effort has been particularly effective in the regulation of product and labor markets and industrial policy. On other factors which are very relevant for productivity dynamics, the reform action has been less effective so far.

Law Enforcement and Political Participation: Italy, 1861-65

Does tougher law enforcement positively affect political participation? This paper addresses this question, which hinges upon the causal impact of formal institutions on informal ones, by using a historical event from 19th century Italy. This event was the Pica Law, which was introduced in 1863 to fight a surge of criminal violence in Southern Italy and to ensure a safer environment for wealthy people, the only ones allowed to vote at that time. Our main finding, obtained using a spatial regression discontinuity technique in a diff-in-diffs framework, is that voter turnout greatly increased in those areas where the Pica Law was applied, compared with bordering and otherwise similar areas. This result is confirmed by a number of robustness checks and placebo exercises and turns out to be persistent over time.