This paper investigates the asymmetries in trade spillovers from sector-specific technology shocks in China to selected euro area countries. We use a Ricardian-gravity trade model to estimate sectoral competitiveness in individual euro area countries. Simulations on the impact of productivity shocks in Chinese textiles and machinery suggest that the required adjustment in wages, prices, and factor re-allocation is widely heterogenous across euro area countries on accounts of their different specialization patterns. This raises the question of the distribution of gains and losses from external trade shocks.
. One decade later production structures remain diverse. This paper investigates how different specialization patterns expose countries asymmetrically to external competitiveness shocks, in particular sector-specific technological progress in China.
To this aim, we adopt a multi-sector Ricardian-gravitytrademodel ( Eaton and Kortum, 2002 ; Shikher, 2004 ) where specialization and trade flows are shaped by technology, factor costs and trade barriers. Unlike conventional gravity models (starting with Tinbergen, 1962 ), which assume complete specialization arising
Front Matter Page European Department
II. Trade and Sectoral Specialization: China and the Euro Area
III. A Ricardian-GravityTradeModel
IV. Estimating Relative Competitiveness
V. Illustrative Scenarios
A. General Equilibrium
B. The Impact of Trade Shocks on Euro Area Countries: Some Illustrative Scenarios
Appendix: Sample and Data
1. China’s Exports to the Euro Area
2. Sectoral Specialization in Ten Euro Area Countries, 2000 and 2007
3. Density Function for