Import Competition and Exit in Business Services Sectors
AbstractBusiness services firms are increasingly under pressure from foreign competition. We develop an oligopolistic competition model that studies the effect of trade liberalization on exit and sectoral restructuring in the business services sector. We assume that firms are heterogeneous in their marginal costs, allowing the model to predict domestic M&A and exit by closedown, as well as foreign M&A. The model is brought to detailed French firm-level data on exit and M&A in the business services sector. The empirical analysis confirms that due to greater import penetration, French service firms exit by closedown and by M&A. Contrary to previous findings for manufacturing, we show that imports from high-income countries cause the majority of this exit, helping to inform the ongoing debate regarding the dangers of services trade liberalization.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8095.
Date of creation: Nov 2010
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Find related papers by JEL classification:
- F1 - International Economics - - Trade
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
- L8 - Industrial Organization - - Industry Studies: Services
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