Multi Product Firms, Import Competition, and the Evolution of Firm-Product Technical Efficiencies

42 Pages Posted: 4 Aug 2017 Last revised: 11 Aug 2017

See all articles by Emmanuel Dhyne

Emmanuel Dhyne

National Bank of Belgium

Amil Petrin

University of Minnesota - Duluth; National Bureau of Economic Research (NBER)

Valérie Smeets

Aarhus School of Business; Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES)

Frederic Warzynski

Aarhus University - Department of Economics

Date Written: July 2017

Abstract

We study how increased import competition affects the evolution of firm-product technical efficiencies in the small open economy of Belgium. We observe quarterly firm-product data at the 8-digit level on quantities sold and firm-level labor, capital, and intermediate inputs from 1997 to 2007, a period marked by stark declines in tariffs applied to Chinese goods. Using Diewert (1973) and Lau (1976) we show how to estimate firm-product quarterly technical efficiencies using a multi-product production (MPP) function that avoids using single-product (SP) production func- tion approximations to it. We find that a 0.01 increase in the import share leads to a 1.05% gain in technical efficiency. This elasticity translates into gains from com- petition over the sample period exceeding 1.2 billion euros, which is over 2.5% of the average annual value of manufacturing output in Belgium. Firms appear to be less technically efficient at producing goods the further they get from their ”core” good and firms respond to competition by focusing more on their core products. Instrumenting import share - while not important for the signs of the coefficients - is very important for the magnitudes as the effect of competition increases tenfold when one moves from OLS to IV. We close by testing the SP approximation to MPP and reject in eight of twelve industries.

Suggested Citation

Dhyne, Emmanuel and Petrin, Amil and Smeets, Valérie and Warzynski, Frederic, Multi Product Firms, Import Competition, and the Evolution of Firm-Product Technical Efficiencies (July 2017). NBER Working Paper No. w23637. Available at SSRN: https://ssrn.com/abstract=3011136

Emmanuel Dhyne (Contact Author)

National Bank of Belgium ( email )

Brussels, B-1000
Belgium

Amil Petrin

University of Minnesota - Duluth ( email )

1049 University Drive
Duluth, MN 55812
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Valérie Smeets

Aarhus School of Business ( email )

Haslegaardsvej 10
DK-8210 Aarhus, 8210
Denmark

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES)

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium

Frederic Warzynski

Aarhus University - Department of Economics ( email )

hermodsvej 22
DK-8230 Åbyhøj
Denmark
+45 89 48 61 95 (Phone)

HOME PAGE: http://www.hha.dk/~fwa/frederic.htm

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