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Globalization and Firm Exit: Differences Between Small and Large Firms

Author

Listed:
  • Colantone, Italo

    (Erasmus University Rotterdam)

  • Coucke, Kristien

    () (Hogeschool-Universiteit Brussel (HUB), Belgium)

  • Sleuwaegen, Leo

    () (KU Leuven and Vlerick Leuven Gent Management School)

Abstract

The effects of increasing import competition on the exit of heterogeneous domestic fi?rms are investigated, both at the theoretical and empirical level. Within the context of an oligopolistic rivalry model, marginal cost fl?exibility and product differentiation with respect to the imported goods are shown to lower the displacement effect from international competition, thus helping fi?rms to survive. Both results point to small fi?rms as being in a relatively favourable position with respect to their larger competitors, as industries adjust to increasing import penetration. These ?findings are consistent with empirical evidence on fi?rm exit for 12 manufacturing sectors in 8 European countries, from 1997 to 2003. In particular, the exit of large fi?rms is found to be sensitive to the shock of soaring import penetration from low-wage countries. Small fi?rms 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 fi?rms of different size might be affected differently by diverse sources of import competition. Implications on fi?rm strategic planning and public policy are discussed.

Suggested Citation

  • Colantone, Italo & Coucke, Kristien & Sleuwaegen, Leo, 2010. "Globalization and Firm Exit: Differences Between Small and Large Firms," Working Papers 2010/19, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
  • Handle: RePEc:hub:wpecon:201019
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    Cited by:

    1. Michele Bernini & Jun Du & James H. Love, 2016. "Explaining intermittent exporting: Exit and conditional re-entry in export markets," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 47(9), pages 1058-1076, December.
    2. Rafaelita M. Aldaba, . "Understanding the Relationship Between Globalization and Survival of Philippine SMEs," Chapters, Economic Research Institute for ASEAN and East Asia (ERIA).

    More about this item

    Keywords

    oligopolistic competition; low-wage country import competition; f?irm exit;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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