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

  • Horst Raff

    ()

    (Kiel Institute for the World Economy and Department of Economics, Christian-Albrechts-Universität zu Kiel)

  • Joachim Wagner

    ()

    (Institute of Economics, Leuphana University of Lüneburg, Germany)

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.

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Paper provided by University of Lüneburg, Institute of Economics in its series Working Paper Series in Economics with number 144.

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Length: 27 pages
Date of creation: Sep 2009
Date of revision:
Handle: RePEc:lue:wpaper:144
Contact details of provider: Web page: http://leuphana.de/institute/ivwl.html

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