Import Competition from and Outsourcing to China: A Curse or Blessing for Firms?

49 Pages Posted: 18 Jan 2011

See all articles by Giordiano Mion

Giordiano Mion

University of Sussex

Linke Zhu

Catholic University of Leuven (KUL) - Faculty of Business and Economics, LICOS

Date Written: January 2011

Abstract

We use Belgian manufacturing firm-level data over the period 1996-2007 to analyze the impact of imports from different origins on firm growth, exit, and skill upgrading. For this purpose we use both industry-level and firm-level imports by country of origin and distinguish between firm-level outsourcing of final versus intermediate goods. Results indicate that China is different from both other low-wage and OECD countries. Industry-level import competition and firm-level outsourcing to China reduce firm employment growth and induce skill upgrading. In contrast, industry-level imports have no effect on Belgian firm survival, while firm-level outsourcing of finished goods to China even increased firm's probability of survival. In terms of skill upgrading, the effect of Chinese imports is large. Import competition from China accounts for 42% (20%) of the within firm increase in the share of skilled workers (non-production workers) in Belgian manufacturing over the period of our analysis, but these effects, as well as the employment reducing effect, remain mainly in low-tech industries. Firm-level outsourcing to China further accounts for a small but significant increase in the share of non-production workers. This change in employment structure is in line with predictions of recent model of trade-induced technological change and offshoring.

Keywords: China, import competition, outsourcing, skill upgrading, technological change

JEL Classification: F14, F16, L25

Suggested Citation

Mion, Giordiano and Zhu, Linke, Import Competition from and Outsourcing to China: A Curse or Blessing for Firms? (January 2011). CEPR Discussion Paper No. DP8188, Available at SSRN: https://ssrn.com/abstract=1742732

Giordiano Mion (Contact Author)

University of Sussex ( email )

Linke Zhu

Catholic University of Leuven (KUL) - Faculty of Business and Economics, LICOS ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

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