The Effect of Foreign Competition on UK Firm Level Employment: Theory and Evidence
In this paper we investigate the effect of increased foreign competition on home employment. The interaction of both product and labour market responses to foreign competition will be of key importance to understanding the impact of foreign competition on domestic employment. In a simple theoretical framework, we introduce both labour and product market assymmetries between home and foreign firms in an industry and show how these play a central role in the responses of home firms to increased foreign competition. We test the predictions of our theory using UK firm level panel data over the period 1982 to 1989 and find empirical evidence that supports our theoretical framework.
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