Product Scope Adjustment to the China Shock: Competition at Home and Abroad

How does China's rise affect exporters’ product scope when they compete with Chinese firms at home and abroad? Using Korean plant-level data, we find that both domestic import penetration and export competition in third markets reduce product scope. Specifically, export competition dampens new product creation, while import penetration accelerates the destruction of existing products. Eventually, both forms of competition lead to resource reallocation toward core products, highlighting distinct mechanisms through which global competition shapes product dynamics. We propose the disproportionate importance of the domestic market, the forward-looking nature of product creation, and creative destruction as potential drivers behind these responses.