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Trade as an engine of creative destruction: Mexican experience with Chinese competition

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  • Iacovone, Leonardo
  • Rauch, Ferdinand
  • Winters, L. Alan

Abstract

This paper exploits the surge in Chinese exports from 1994 to 2004 to evaluate the effects of a competition shock from a low wage competitor for producers in an important middle-income country, Mexico. We find that this shock causes selection and reallocation at both firm and product levels and that its impact is highly heterogeneous at the intensive and extensive margins. Sales of smaller plants and more marginal products are compressed and are more likely to cease, whereas those of larger plants and core products seem relatively impervious to the shock. This implies a reallocation in terms of market shares within firms and between firms. We also show that the impact of expanded access to cheaper Chinese intermediate inputs has a similar effect, with larger plants benefiting more from the availability of cheaper imported inputs.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 89 (2013)
Issue (Month): 2 ()
Pages: 379-392

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Handle: RePEc:eee:inecon:v:89:y:2013:i:2:p:379-392

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Web page: http://www.elsevier.com/locate/inca/505552

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Keywords: Competition; Trade; Firm-heterogeneity; Product-level; Mexico; China;

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References

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Citations

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Cited by:
  1. Damoun Ashournia & Jakob Munch & Daniel Nguyen, 2014. "The Impact of Chinese Import Penetration on Danish Firms and Workers," Economics Series Working Papers 703, University of Oxford, Department of Economics.
  2. Mauro Caselli & Arpita Chatterjee & Alan Woodland, 2014. "Multi-product exporters, variable markups and exchange rate fluctuations," Discussion Papers 2014-15, School of Economics, The University of New South Wales.
  3. Kis-Katos, Krisztina & Sparrow, Robert, 2013. "Poverty, Labour Markets and Trade Liberalization in Indonesia," IZA Discussion Papers 7645, Institute for the Study of Labor (IZA).
  4. Besedes, Tibor, 2011. "The role of NAFTA and returns to scale in export duration," MPRA Paper 31217, University Library of Munich, Germany.
  5. Stracca, Livio, 2013. "The rise of China and India: blessing or curse for the advanced countries?," Working Paper Series 1620, European Central Bank.
  6. Anna Maria MAYDA & NAKANE Masato & STEINBERG, Chad & YAMADA Hiroyuki, 2012. "Exposure to Low-wage Country Imports and the Growth of Japanese Manufacturing Plants," Discussion papers 12038, Research Institute of Economy, Trade and Industry (RIETI).
  7. Majlesi, Kaveh, 2014. "Labor Market Opportunities and Women's Decision Making Power within Households," Working Papers 2014:4, Lund University, Department of Economics.

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