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Import Competition and Exit in Business Services Sectors

Author

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  • Bombarda, Pamela
  • McCann, Fergal
  • Toubal, Farid

Abstract

Business 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.

Suggested Citation

  • Bombarda, Pamela & McCann, Fergal & Toubal, Farid, 2010. "Import Competition and Exit in Business Services Sectors," CEPR Discussion Papers 8095, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:8095
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    References listed on IDEAS

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    1. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2003. "Plants and Productivity in International Trade," American Economic Review, American Economic Association, vol. 93(4), pages 1268-1290, September.
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    8. Robert H. McGuckin & Sang V. Nguyen, 1995. "On Productivity and Plant Ownership Change: New Evidence from the Longitudinal Research Database," RAND Journal of Economics, The RAND Corporation, vol. 26(2), pages 257-276, Summer.
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    More about this item

    Keywords

    exit; firm-level data; import competition; oligopoly; services trade;

    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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