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Intra-Industry Adjustment to Import Competition: Theory and Application to the German Clothing Industry

Author

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  • Raff, Horst

    (Kiel Institute for the World Economy)

  • Wagner, Joachim

    (Leuphana University Lüneburg)

Abstract

This paper uses an oligopoly model with heterogeneous firms to examine how an industry adjusts to rising import competition. The model predicts that in the short run the least efficient firms in the industry become inactive, surviving firms face a fall in output, mark-ups and profits, and the average productivity of survivors increases. These pro-competitive effects of import penetration on the domestic industry disappear in the long run. The predictions for the short run are confirmed in an empirical study of the German clothing industry.

Suggested Citation

  • Raff, Horst & Wagner, Joachim, 2009. "Intra-Industry Adjustment to Import Competition: Theory and Application to the German Clothing Industry," IZA Discussion Papers 4434, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp4434
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    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Görg, Holger & Hanley, Aoife, 2017. "Globalization: Implications for firms in Germany," Working Papers 04/2017, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.
    2. Toubal, Farid & Bombarda, Pamela & McCann, Fergal, 2010. "Import Competition and Exit in Business Services Sectors," CEPR Discussion Papers 8095, C.E.P.R. Discussion Papers.
    3. Doan, Tinh & Stevens, Philip, 2012. "Evolution of competition in Vietnam industries over the recent economic transition," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 6, pages 1-24.
    4. Eike Berner & Laura Birg & Dominik Boddin, 2017. "Retailers and Consumers: The Pass-through of Import Price Changes," The World Economy, Wiley Blackwell, vol. 40(7), pages 1314-1344, July.
    5. repec:got:cegedp:133 is not listed on IDEAS
    6. Matteo Bugamelli & Silvia Fabiani & Enrico Sette, "undated". "The age of the dragon: Chinese competition and the pricing behavior of the Italian firms," Working Papers 4, Department of the Treasury, Ministry of the Economy and of Finance.
    7. Nils Braakmann & Joachim Wagner, 2009. "Labor market adjustments after a large import shock: Evidence from the German clothing industry and the Multi-Fibre Arrangement," Working Paper Series in Economics 155, University of Lüneburg, Institute of Economics.
    8. Julian Emami Namini & Giovanni Facchini & Ricardo A. López, 2015. "A model of firm heterogeneity in factor intensities and international trade," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 48(4), pages 1456-1480, November.
    9. Priyanka Singh Bhadouria & N.M.P. Verma, 2012. "Intra-industry trade in textile industry: the case of India," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 4(1/2), pages 199-212.
    10. Cadogan, Godfrey, 2010. "A Trade Policy Perspective On Import Quotas And The Substitution Effect," MPRA Paper 25862, University Library of Munich, Germany.
    11. Abbassi, Abdessalem & Tamini, Lota D. & Dakhlaoui, Ahlem, 2015. "Import quota allocation between regions under Cournot competition," Economic Modelling, Elsevier, vol. 51(C), pages 484-490.

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    More about this item

    Keywords

    international trade; firm heterogeneity; productivity; clothing industry;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration

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