The effects of increasing import competition on output displacement and exit of heterogeneousdomestic firms are investigated within the context of an oligopolistic rivalry model.The displacement effect is found to be stronger for large "output flexible" firms, while small"cost flexible" ones are less affected by increasing import pressure. Extending the model to allow for product heterogeneity between domestic and foreign firms, we also find that product differentiation lowers the displacement effect. The theoretical findings are supported at the empirical level by the analysis of firm exit dynamics for 12 manufacturing sectors in 8 European countries, from 1997 to 2003. In particular, we find that the exit of large firms is sensitive to the shock of increasing import penetration from low-wage countries. Small firms in the same industries are instead only affected by marginal trade integration with respect to neighbouring EU countries and other relatively wealthy trading partners. Hence this paper shows, for the first time, that firms of different size might be affected differently by diverse sources of import competition. Implications on firms’ strategic planning and public policy are discussed.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.: