IDEAS home Printed from https://ideas.repec.org/p/sus/susewp/0510.html
   My bibliography  Save this paper

Trade as an Engine of Creative Destruction Mexico experience with Chinese competition

Author

Listed:
  • Leonardo Iacovone

    () (Development Research Group, World Bank)

  • Ferdinand Rauch

    () (Department of Economics, University of Vienna)

  • L. Alan Winters

    () (Department of Economics, University of Sussex)

Abstract

This paper exploits the surge in Chinese exports from 1994 to 2004 as a natural experiment to evaluate the effects of a unilateral low wage trade and competition shock to producers in Mexico. We find that this shock causes selection at both firm and product levels as its impact is highly heterogeneous both on the intensive and extensive margins. Sales of smaller plants and more marginal products are compressed and are more likely to cease, while larger plants and products exhibit an opposite response. Similar results hold both for the domestic market and for competition facing Mexican exporters in a third market (i.e. the United States).

Suggested Citation

  • Leonardo Iacovone & Ferdinand Rauch & L. Alan Winters, 2010. "Trade as an Engine of Creative Destruction Mexico experience with Chinese competition," Working Paper Series 0510, Department of Economics, University of Sussex.
  • Handle: RePEc:sus:susewp:0510
    as

    Download full text from publisher

    File URL: http://www.sussex.ac.uk/economics/documents/wps5-2010-winters/pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2007. "Firms in International Trade," Journal of Economic Perspectives, American Economic Association, pages 105-130.
    2. Nicholas Bloom & Mirko Draca & John Van Reenen, 2016. "Trade Induced Technical Change? The Impact of Chinese Imports on Innovation, IT and Productivity," Review of Economic Studies, Oxford University Press, pages 87-117.
    3. Bown, Chad P., 2005. "Global antidumping database version 1.0," Policy Research Working Paper Series 3737, The World Bank.
    4. Pinelopi Koujianou Goldberg & Nina Pavcnik, 2005. "Short-term Consequences of Trade Reform for Industry Employment and Wages: Survey of Evidence from Colombia," The World Economy, Wiley Blackwell, vol. 28(7), pages 923-939, July.
    5. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: an Inverted-U Relationship," The Quarterly Journal of Economics, Oxford University Press, pages 701-728.
    6. Thierry Mayer & Marc J. Melitz & Gianmarco I. P. Ottaviano, 2014. "Market Size, Competition, and the Product Mix of Exporters," American Economic Review, American Economic Association, pages 495-536.
    7. Levinsohn, James, 1999. "Employment responses to international liberalization in Chile," Journal of International Economics, Elsevier, pages 321-344.
    8. Iacovone, Leonardo & Javorcik, Beata S., 2008. "Multi-product exporters : diversification and micro-level dynamics," Policy Research Working Paper Series 4723, The World Bank.
    9. Eric A. Verhoogen, 2008. "Trade, Quality Upgrading, and Wage Inequality in the Mexican Manufacturing Sector," The Quarterly Journal of Economics, Oxford University Press, pages 489-530.
    10. Nina Pavcnik, 2002. "Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 245-276.
    11. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, pages 1695-1725.
    12. David H. Autor & David Dorn & Gordon H. Hanson, 2013. "The China Syndrome: Local Labor Market Effects of Import Competition in the United States," American Economic Review, American Economic Association, pages 2121-2168.
    13. Fernandes, Ana M., 2007. "Trade policy, trade volumes and plant-level productivity in Colombian manufacturing industries," Journal of International Economics, Elsevier, pages 52-71.
    14. Morris M. Kleiner & Alan B. Krueger, 2013. "Analyzing the Extent and Influence of Occupational Licensing on the Labor Market," Journal of Labor Economics, University of Chicago Press, vol. 31(S1), pages 173-202.
    15. Andrew B Bernard & J. Bradford Jensen, 2007. "Firm Structure, Multinationals, and Manufacturing Plant Deaths," The Review of Economics and Statistics, MIT Press, pages 193-204.
    16. Hsieh, Chang-Tai & Ossa, Ralph, 2016. "A global view of productivity growth in China," Journal of International Economics, Elsevier, pages 209-224.
    17. Daniel Lederman & Marcelo Olarreaga & Eliana Rubiano, 2008. "Trade Specialization in Latin America: The Impact of China and India," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), pages 248-271.
    18. Petia Topalova & Nina Pavcnik & Amit Khandelwal & Penny Goldberg, 2009. "Multi-product Firms and Product Turnover in the Developing World: Evidence from India," 2009 Meeting Papers 176, Society for Economic Dynamics.
    19. Baldwin, John R. & Gu, Wulong, 2006. "The Impact of Trade on Plant Scale, Production-Run Length and Diversification," Economic Analysis (EA) Research Paper Series 2006038e, Statistics Canada, Analytical Studies Branch.
    20. Marc J. Melitz & Gianmarco I. P. Ottaviano, 2008. "Market Size, Trade, and Productivity," Review of Economic Studies, Oxford University Press, pages 295-316.
    21. Chen, Natalie & Imbs, Jean & Scott, Andrew, 2009. "The dynamics of trade and competition," Journal of International Economics, Elsevier, pages 50-62.
    22. Julian di Giovanni & Andrei A. Levchenko & Jing Zhang, 2014. "The Global Welfare Impact of China: Trade Integration and Technological Change," American Economic Journal: Macroeconomics, American Economic Association, pages 153-183.
    23. Maurice Kugler & John Haltiwanger & Adriana Kugler & Marcela Eslava, 2009. "Trade Reforms and Market Selection: Evidence from Manufacturing Plants in Colombia," 2009 Meeting Papers 615, Society for Economic Dynamics.
    24. Alla Lileeva & Daniel Trefler, 2010. "Improved Access to Foreign Markets Raises Plant-level Productivity…For Some Plants," The Quarterly Journal of Economics, Oxford University Press, vol. 125(3), pages 1051-1099.
    25. Avendano, Rolando & Alonso Arroba, Angel & Estrada, Arturo, 2009. "Adapting to the Rise of China: How can Latin American Companies Succeed?," MPRA Paper 25948, University Library of Munich, Germany.
    26. Sanjaya Lall & John Weiss & Hiroshi Oikawa, 2005. "China's Competitive Threat to Latin America: An Analysis for 1990-2002," Oxford Development Studies, Taylor & Francis Journals, pages 163-194.
    27. Bernard, Andrew B. & Jensen, J. Bradford & Schott, Peter K., 2006. "Survival of the best fit: Exposure to low-wage countries and the (uneven) growth of U.S. manufacturing plants," Journal of International Economics, Elsevier, pages 219-237.
    28. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2012. "The Empirics of Firm Heterogeneity and International Trade," Annual Review of Economics, Annual Reviews, pages 283-313.
    29. Alla Lileeva & Daniel Trefler, 2007. "Improved Access to Foreign Markets Raises Plant-Level Productivity ... for Some Plants," NBER Working Papers 13297, National Bureau of Economic Research, Inc.
    30. Runjuan Liu, 2010. "Import competition and firm refocusing," Canadian Journal of Economics, Canadian Economics Association, vol. 43(2), pages 440-466, May.
    31. Paula Bustos, 2009. "Trade Liberalization, Exports and Technology Upgrading: Evidence on the Impact of MERCOSUR on Argentinean Firms," 2009 Meeting Papers 1029, Society for Economic Dynamics.
    32. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    33. Peter Neary & Carsten Eckel, 2006. "Multi-Product Firms and Flexible Manufacturing in the Global Economy," Economics Series Working Papers 292, University of Oxford, Department of Economics.
    34. John Baldwin & Wulong Gu, 2009. "The Impact of Trade on Plant Scale, Production-Run Length and Diversification," NBER Chapters,in: Producer Dynamics: New Evidence from Micro Data, pages 557-592 National Bureau of Economic Research, Inc.
    35. Matthew Blackwell & James Honaker & Gary King, 2017. "A Unified Approach to Measurement Error and Missing Data: Overview and Applications," Sociological Methods & Research, , vol. 46(3), pages 303-341, August.
    36. Mary Amiti & Caroline Freund, 2010. "The Anatomy of China's Export Growth," NBER Chapters,in: China's Growing Role in World Trade, pages 35-56 National Bureau of Economic Research, Inc.
    37. De Hoyos, Rafael E. & Iacovone, Leonardo, 2013. "Economic Performance under NAFTA: A Firm-Level Analysis of the Trade-productivity Linkages," World Development, Elsevier, pages 180-193.
    38. Mary Amiti & Jozef Konings, 2007. "Trade Liberalization, Intermediate Inputs, and Productivity: Evidence from Indonesia," American Economic Review, American Economic Association, pages 1611-1638.
    39. Pinelopi K Goldberg & Amit K Khandelwal & Nina Pavcnik & Petia Topalova, 2010. "Multiproduct Firms and Product Turnover in the Developing World: Evidence from India," The Review of Economics and Statistics, MIT Press, pages 1042-1049.
    40. Lederman, Daniel & Olarreaga, Marcelo & Soloaga, Isidro, 2007. "The growth of China and India in world trade : opportunity or threat for Latin America and the Caribbean?," Policy Research Working Paper Series 4320, The World Bank.
    41. Mary Amiti & Jozef Konings, 2007. "Trade Liberalization, Intermediate Inputs, and Productivity: Evidence from Indonesia," American Economic Review, American Economic Association, pages 1611-1638.
    42. Pinelopi K Goldberg & Amit K Khandelwal & Nina Pavcnik & Petia Topalova, 2010. "Multiproduct Firms and Product Turnover in the Developing World: Evidence from India," The Review of Economics and Statistics, MIT Press, pages 1042-1049.
    43. Barry Eichengreen & Yeongseop Rhee & Hui Tong, 2007. "China and the Exports of Other Asian Countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), pages 201-226.
    44. Jenkins, Rhys & Peters, Enrique Dussel & Moreira, Mauricio Mesquita, 2008. "The Impact of China on Latin America and the Caribbean," World Development, Elsevier, vol. 36(2), pages 235-253, February.
    45. Fernandes, Ana M. & Paunov, Caroline, 2009. "Does tougher import competition foster product quality upgrading ?," Policy Research Working Paper Series 4894, The World Bank.
    46. Adrian Wood & Jörg Mayer, 2011. "Has China de-industrialised other developing countries?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), pages 325-350.
    47. Adrian Wood & Jörg Mayer, 2011. "Has China de-industrialised other developing countries?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), pages 325-350.
    48. Fernandes, Ana M. & Paunov, Caroline, 2008. "Foreign direct investment in services and manufacturing productivity growth: evidence for Chile," Policy Research Working Paper Series 4730, The World Bank.
    49. Card, David, 2001. "Estimating the Return to Schooling: Progress on Some Persistent Econometric Problems," Econometrica, Econometric Society, vol. 69(5), pages 1127-1160, September.
    50. Pinelopi Koujianou Goldberg & Amit Kumar Khandelwal & Nina Pavcnik & Petia Topalova, 2010. "Imported Intermediate Inputs and Domestic Product Growth: Evidence from India," The Quarterly Journal of Economics, Oxford University Press, vol. 125(4), pages 1727-1767.
    51. Andrew B. Bernard & Stephen J. Redding & Peter K. Schott, 2011. "Multiproduct Firms and Trade Liberalization," The Quarterly Journal of Economics, Oxford University Press, vol. 126(3), pages 1271-1318.
    52. L. Alan Winters & Shahid Yusuf, 2007. "Dancing with the Giants: China, India, and the Global Economy," World Bank Publications, The World Bank, number 6632.
    53. Carsten Eckel & J. Peter Neary, 2010. "Multi-Product Firms and Flexible Manufacturing in the Global Economy," Review of Economic Studies, Oxford University Press, vol. 77(1), pages 188-217.
    54. Paula Bustos, 2011. "Trade Liberalization, Exports, and Technology Upgrading: Evidence on the Impact of MERCOSUR on Argentinian Firms," American Economic Review, American Economic Association, pages 304-340.
    55. Thierry Mayer & Marc J. Melitz & Gianmarco I. P. Ottaviano, 2014. "Market Size, Competition, and the Product Mix of Exporters," American Economic Review, American Economic Association, pages 495-536.
    56. Moulton, Brent R, 1990. "An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables on Micro Unit," The Review of Economics and Statistics, MIT Press, pages 334-338.
    57. Chernozhukov, Victor & Hansen, Christian, 2006. "Instrumental quantile regression inference for structural and treatment effect models," Journal of Econometrics, Elsevier, vol. 132(2), pages 491-525, June.
    58. Nina Pavcnik & Andreas Blom & Pinelopi Goldberg & Norbert Schady, 2004. "Trade Liberalization and Industry Wage Structure: Evidence from Brazil," World Bank Economic Review, World Bank Group, vol. 18(3), pages 319-344.
    59. Thierry Mayer & Marc J. Melitz & Gianmarco I. P. Ottaviano, 2014. "Market Size, Competition, and the Product Mix of Exporters," American Economic Review, American Economic Association, pages 495-536.
    60. Paula Bustos, 2011. "Trade Liberalization, Exports, and Technology Upgrading: Evidence on the Impact of MERCOSUR on Argentinian Firms," American Economic Review, American Economic Association, pages 304-340.
    61. Thierry Mayer & Marc J. Melitz & Gianmarco I. P. Ottaviano, 2014. "Market Size, Competition, and the Product Mix of Exporters," American Economic Review, American Economic Association, pages 495-536.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    China; Mexico; multi-product-firm; trade shock;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sus:susewp:0510. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Russell Eke). General contact details of provider: http://edirc.repec.org/data/ecsusuk.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.