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Intra-Industry Adjustment to Import Competition: Theory and Application to the German Clothing Industry

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  • Horst Raff
  • Joachim Wagner

Abstract

This paper uses an oligopoly model with heterogeneous firms to examine how an industry adjusts to rising import competition. The model predicts that in the short run the least efficient firms in the industry become inactive, surviving firms face a fall in output, mark-ups and profits, and the average productivity of survivors increases. These pro-competitive effects of import penetration on the domestic industry disappear in the long run. The predictions for the short run are confirmed in an empirical study of the German clothing industry.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2009/wp-cesifo-2009-11/cesifo1_wp2851.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2851.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2851

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Related research

Keywords: international trade; firm heterogeneity; productivity; clothing industry;

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References

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  1. Ngo Van Long & Horst Raff & Frank Stähler, 2008. "Innovation and Trade with Heterogeneous Firms," Kiel Working Papers 1430, Kiel Institute for the World Economy.
  2. Ottaviano, Gianmarco & Melitz, Marc, 2008. "Market Size, Trade, and Productivity," Scholarly Articles 3229096, Harvard University Department of Economics.
  3. Francois, Joseph & Woerz, Julia, 2009. "Non-linear panel estimation of import quotas: The evolution of quota premiums under the ATC," Journal of International Economics, Elsevier, vol. 78(2), pages 181-191, July.
  4. Fernandes, Ana M., 2007. "Trade policy, trade volumes and plant-level productivity in Colombian manufacturing industries," Journal of International Economics, Elsevier, vol. 71(1), pages 52-71, March.
  5. Gu, Wulong & Baldwin, John R., 2006. "The Impact of Trade on Plant Scale, Production-Run Length and Diversification," Economic Analysis (EA) Research Paper Series 2006038e, Statistics Canada, Analytical Studies Branch.
  6. Hiau Looi Kee & Kala Krishna, 2008. "Firm-Level Heterogeneous Productivity and Demand Shocks: Evidence from Bangladesh," American Economic Review, American Economic Association, vol. 98(2), pages 457-62, May.
  7. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-50, September.
  8. Demidova, Svetlana & Kee, Hiau Looi & Krishna, Kala, 2012. "Do trade policy differences induce sorting? Theory and evidence from Bangladeshi apparel exporters," Journal of International Economics, Elsevier, vol. 87(2), pages 247-261.
  9. Chen, Natalie & Imbs, Jean & Scott, Andrew, 2009. "The dynamics of trade and competition," Journal of International Economics, Elsevier, vol. 77(1), pages 50-62, February.
  10. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and Productivity in International Trade," Boston University - Institute for Economic Development 105, Boston University, Institute for Economic Development.
  11. Alla Lileeva & Daniel Trefler, 2010. "Improved Access to Foreign Markets Raises Plant-Level Productivity... for Some Plants," The Quarterly Journal of Economics, MIT Press, vol. 125(3), pages 1051-1099, August.
  12. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  13. David Greenaway & Richard Kneller, 2007. "Firm heterogeneity, exporting and foreign direct investment," Economic Journal, Royal Economic Society, vol. 117(517), pages F134-F161, 02.
  14. Timothy Dunne & J. Bradford Jensen & Mark J. Roberts, 2009. "Producer Dynamics: New Evidence from Micro Data," NBER Books, National Bureau of Economic Research, Inc, number dunn05-1, May.
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Cited by:
  1. Nils Braakmann & Joachim Wagner, 2009. "Labor market adjustments after a large import shock: Evidence from the German clothing industry and the Multi-Fibre Arrangement," Working Paper Series in Economics 155, University of Lüneburg, Institute of Economics.
  2. Doan, Tinh, 2012. "Evolution of competition in Vietnam industries over the recent economic transition," Economics Discussion Papers 2012-12, Kiel Institute for the World Economy.
  3. Priyanka Singh Bhadouria & N.M.P. Verma, 2012. "Intra-industry trade in textile industry: the case of India," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 4(1/2), pages 199-212.

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