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Import competition and firm refocusing

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  • Runjuan Liu

Abstract

Recent theoretical work predicts a new margin of firm adjustment to trade liberalization; that is, multi-product firms alter their product mix to focus on their core competencies in response to trade liberalization. Using detailed product data from U.S. public firms, I find strong empirical support for this prediction. Specifically, import competition leads multi-product firms to drop peripheral products to refocus on core production. The weaker the linkages that a peripheral product shares with the core (as measured by the extent of joint sales, joint procurement, joint production, and joint sectorship), the more likely the peripheral product is to be divested in response to import competition.

Suggested Citation

  • Runjuan Liu, 2010. "Import competition and firm refocusing," Canadian Journal of Economics, Canadian Economics Association, vol. 43(2), pages 440-466, May.
  • Handle: RePEc:cje:issued:v:43:y:2010:i:2:p:440-466
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Breinlich, Holger & Soderbery, Anson & Wright, Greg C., 2014. "From selling goods to selling services: firm responses to trade liberalization," LSE Research Online Documents on Economics 60523, London School of Economics and Political Science, LSE Library.
    2. 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.
    3. Rudy Colacicco, 2015. "Ten Years Of General Oligopolistic Equilibrium: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 29(5), pages 965-992, December.
    4. Ma, Yue & Tang, Heiwai & Zhang, Yifan, 2014. "Factor Intensity, product switching, and productivity: Evidence from Chinese exporters," Journal of International Economics, Elsevier, pages 349-362.
    5. Iacovone, Leonardo & Rauch, Ferdinand & Winters, L. Alan, 2013. "Trade as an engine of creative destruction: Mexican experience with Chinese competition," Journal of International Economics, Elsevier, pages 379-392.
    6. Arita, Shawn & Hemanchandra, Dilini & Leung, PingSun, 0. "Can Local Farms Survive Globalization?," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association.
    7. Lopresti, John, 2016. "Multiproduct firms and product scope adjustment in trade," Journal of International Economics, Elsevier, vol. 100(C), pages 160-173.
    8. Johannes Boehm & Swati Dhingra & John Morrow, 2016. "Swimming Upstream: Input-output Linkages and the Direction of Product Adoption," CEP Discussion Papers dp1407, Centre for Economic Performance, LSE.
    9. Zajc Kejžar, Katja, 2016. "Shutdown versus M&A: An empirical investigation of Slovenian incumbent firms’ responses to foreign competition," Economic Systems, Elsevier, vol. 40(2), pages 247-259.
    10. Liu, Runjuan & Rosell, Carlos, 2013. "Import competition, multi-product firms, and basic innovation," Journal of International Economics, Elsevier, vol. 91(2), pages 220-234.
    11. Xu, Jiayun & Mao, Qilin & Tong, Jiadong, 2016. "The impact of exchange rate movements on multi-product firms' export performance: Evidence from China," China Economic Review, Elsevier, vol. 39(C), pages 46-62.
    12. Arita, Shawn & Hemanchandra, Dilini & Leung, PingSun, 2014. "Can Local Farms Survive Globalization?," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 43(2), August.

    More about this item

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F15 - International Economics - - Trade - - - Economic Integration
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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