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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: https://www.ifw-members.ifw-kiel.de/publications/intra-industry-adjustment-to-import-competition-theory-and-application-to-the-german-clothing-industry/kwp_1557
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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1557.

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Length: 22 pages
Date of creation: Sep 2009
Date of revision:
Handle: RePEc:kie:kieliw:1557

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

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References

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  1. Ottaviano, Gianmarco & Melitz, Marc, 2008. "Market Size, Trade, and Productivity," Scholarly Articles 3229096, Harvard University Department of Economics.
  2. Alla Lileeva & Daniel Trefler, 2007. "Improved Access to Foreign Markets Raises Plant-Level Productivity ... for Some Plants," NBER Working Papers 13297, National Bureau of Economic Research, Inc.
  3. Andrew B Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and productivity in international trade," Working Papers, Center for Economic Studies, U.S. Census Bureau 00-08, Center for Economic Studies, U.S. Census Bureau.
  4. Ngo Van Long & Horst Raff & Frank Stähler, 2009. "Innovation and Trade with Heterogeneous Firms," CESifo Working Paper Series 2796, CESifo Group Munich.
  5. 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, Elsevier, vol. 78(2), pages 181-191, July.
  6. Svetlana Demidova & Hiau Looi Kee & Kala Krishna, 2006. "Do Trade Policy Differences Induce Sorting? Theory and Evidence from Bangladeshi Apparel Exporters," NBER Working Papers 12725, National Bureau of Economic Research, Inc.
  7. Fernandes, Ana M., 2003. "Trade policy, trade volumes, and plant-level productivity in Colombian manufacturing industries," Policy Research Working Paper Series 3064, The World Bank.
  8. Joachim Wagner, 2005. "Exports and Productivity: A survey of the evidence from firm level data," Working Paper Series in Economics, University of Lüneburg, Institute of Economics 4, University of Lüneburg, Institute of Economics.
  9. 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.
  10. John Baldwin & Wulong Gu, 2009. "The Impact of Trade on Plant Scale, Production-Run Length and Diversification," NBER Chapters, National Bureau of Economic Research, Inc, in: Producer Dynamics: New Evidence from Micro Data, pages 557-592 National Bureau of Economic Research, Inc.
  11. Natalie Chen & Jean Imbs & Andrew Scott, 2006. "The dynamics of trade and competition," Working Paper Research, National Bank of Belgium 91, National Bank of Belgium.
  12. Timothy Dunne & J. Bradford Jensen & Mark J. Roberts, 2009. "Producer Dynamics: New Evidence from Micro Data," NBER Books, National Bureau of Economic Research, Inc, National Bureau of Economic Research, Inc, number dunn05-1.
  13. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, Econometric Society, vol. 60(5), pages 1127-50, September.
  14. Hiau Looi Kee & Kala Krishna, 2008. "Firm-Level Heterogeneous Productivity and Demand Shocks: Evidence from Bangladesh," American Economic Review, American Economic Association, American Economic Association, vol. 98(2), pages 457-62, May.
  15. David Greenaway & Richard Kneller, 2007. "Firm heterogeneity, exporting and foreign direct investment," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 117(517), pages F134-F161, 02.
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Citations

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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, University of Lüneburg, Institute of 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. repec:got:cegedp:133 is not listed on IDEAS
  4. 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, Inderscience Enterprises Ltd, vol. 4(1/2), pages 199-212.

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