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Intra-Industry Adjustment to Import Competition: Theory and Application to the German Clothing IndustryHorst RaffChristian-Albrechts-Universitaet zu Kiel; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Kiel Institute for the World Economy Joachim WagnerUniversity of Lueneburg - Institute of Economics; Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Economics; Institute for the Study of Labor (IZA) IZA Discussion Paper No. 4434 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.
Number of Pages in PDF File: 23 Keywords: international trade, firm heterogeneity, productivity, clothing industry JEL Classification: F12, F15 working papers seriesDate posted: October 15, 2009Suggested CitationContact Information
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