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

Author

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  • 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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    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. 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.
    3. repec:got:cegedp:133 is not listed on IDEAS
    4. 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.
    5. 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.
    6. 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.
    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.

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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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