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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) World Economy, Vol. 33, No. 8, pp. 1006-1022, August 2010 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 average industry productivity increases due to a selection effect. 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: 17 Accepted Paper SeriesDate posted: August 2, 2010Suggested CitationContact Information
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