Trade-induced Competition and Ownership Dynamics
42 Pages Posted: 27 Nov 2018 Last revised: 15 Jan 2019
Date Written: December 11, 2018
This paper documents a causal effect of trade-induced competition on the ownership dynamics of firms using the largest trade liberalization in China. By exploiting varying degrees of tariff reductions across industries, we find that firms that are more affected by competitive shock experience a larger relative increase in their foreign shareholdings compared to those less affected. We also find a stronger relative effect among firms with a greater demand for external financing and technology, which indicates the strategic role of foreign shareholdings in empowering domestic firms to obtain financing and new technologies in a competitive market.
Keywords: Trade Liberalization, Competition, Ownership Dynamics
JEL Classification: F10, F14, G32
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