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Multi-Product Firms, Import Competition, and the Evolution of Firm-product Technical Efficiencies

Author

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  • Valerie Smeets

    (Aarhus University)

  • Frederic Warzynski

    (Aarhus University)

  • Amil Petrin

    (University of Minnesota)

  • Emmanuel Dhyne

    (National Bank of Belgium)

Abstract

We study how increased import competition affects the evolution of firm-product technical efficiency in Belgium. We observe quarterly data on outputs (quantities sold by very detailed product categories) and inputs (labor, capital, and intermediate inputs) at the firm-level from 1995 to 2007, a period marked by stark declines in Chinese tariffs. Using Diewert (1973) and Lau (1976) we show how to estimate firm-product quarterly technical efficiency shocks allowing for interactions among the production processes for multi-product firms, without allocating firm-level inputs across the different outputs. Instrumenting import share - while not important for the signs of the coefficients - is very important for the magnitudes as the effect of competition increases tenfold when one moves from OLS to IV. We find import competition is strongly positively related to firm-product level productivity with a increase of 10% in the import share leading to a 10% gain in technical efficiency. Firms appear to be less technically efficient at producing goods the further they get from their core competence. Moreover, they respond to competition by focusing more on their core products.

Suggested Citation

  • Valerie Smeets & Frederic Warzynski & Amil Petrin & Emmanuel Dhyne, 2017. "Multi-Product Firms, Import Competition, and the Evolution of Firm-product Technical Efficiencies," 2017 Meeting Papers 242, Society for Economic Dynamics.
  • Handle: RePEc:red:sed017:242
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    References listed on IDEAS

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    Cited by:

    1. Maican, Florin & Orth, Matilda, 2018. "Determinants of Economies of Scope in Retail," Working Paper Series 1247, Research Institute of Industrial Economics, revised 11 Jul 2020.
    2. R. Monin & M. Suarez Castillo, 2020. "Product switching, market power and distance to core competency," Documents de Travail de l'Insee - INSEE Working Papers g2020-06, Institut National de la Statistique et des Etudes Economiques.
    3. HUR, Jung & YOON, Haeyeon, 2018. "Product Dynamics and Trade Liberalization: Evidence from the Korea-US FTA," Discussion paper series HIAS-E-82, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
    4. Emmanuel Dhyne & Glenn Magerman & Ayumu Ken kikkawa, 2019. "Imperfect Competition in Firm-to-Firm Trade," Working Papers ECARES 2019-05, ULB -- Universite Libre de Bruxelles.
    5. Gullstrand, Joakim & Knutsson, Polina, 2019. "The Spatial Dimension of Import Competition," Working Papers 2019:13, Lund University, Department of Economics.
    6. Bräuer, Richard & Mertens, Matthias & Slavtchev, Viktor, 2019. "Import competition and firm productivity: Evidence from German manufacturing," IWH Discussion Papers 20/2019, Halle Institute for Economic Research (IWH).

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    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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