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

Author

Listed:
  • 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)

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

  • Horst Raff & Joachim Wagner, 2009. "Intra-Industry Adjustment to Import Competition: Theory and Application to the German Clothing Industry," Working Paper Series in Economics 144, University of Lüneburg, Institute of Economics.
    • Handle: RePEc:lue:wpaper:144
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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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    7. Long, Ngo Van & Raff, Horst & Stähler, Frank, 2011. "Innovation and trade with heterogeneous firms," Journal of International Economics, Elsevier, vol. 84(2), pages 149-159, July.
    8. Joachim Wagner, 2010. "Entry, Exit and Productivity: Empirical Results for German Manufacturing Industries," German Economic Review, Verein für Socialpolitik, vol. 11, pages 78-85, February.
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    Citations

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    Cited by:

    1. Doan, Tinh & Stevens, Philip, 2012. "Evolution of competition in Vietnam industries over the recent economic transition," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 6, pages 1-24.
    2. 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.
    3. repec:bla:worlde:v:40:y:2017:i:7:p:1314-1344 is not listed on IDEAS
    4. 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.
    5. 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.
    6. repec:got:cegedp:133 is not listed on IDEAS
    7. 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.
    8. 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.

    More about this item

    Keywords

    international trade; firm heterogeneity; productivity; clothing industry;

    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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