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Globalization drives strategic product switching

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  • Veerle Miranda
  • Marialuz Moreno Badia
  • Ilke Van Beveren

Abstract

Using firm-level data for Estonia for the years 1997-2005, we analyze the impact of international competition on firm dynamics, considering both firm closedown and product switching. We contribute to the literature in two important ways: (1) this is the first paper to study the determinants of exit and product switching in an emerging market; and (2) we consider explicitly the role of export opportunities. Our results indicate that globalization does not affect firm exit significantly but it is an important factor explaining product switching. Previous studies on industrial countries have shown that product switching has been a defensive strategy against low-cost imports. In contrast, our results suggest that Estonian firms have switched products as an offensive strategy to take advantage of the export opportunities created by trade liberalization.
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  • Veerle Miranda & Marialuz Moreno Badia & Ilke Van Beveren, 2012. "Globalization drives strategic product switching," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 148(1), pages 45-72, April.
  • Handle: RePEc:spr:weltar:v:148:y:2012:i:1:p:45-72
    DOI: 10.1007/s10290-011-0114-x
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    More about this item

    Keywords

    Product switching; Exit; International trade; Comparative advantage; Core competence; D21; D24; F18; L25; L60;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • F18 - International Economics - - Trade - - - Trade and Environment
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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