We would like to thank Peter Egger and an anonymous referee for helpful suggestions. All computations for the empirical part of this paper were performed inside the research data centre of the statistical office in Berlin-Brandenburg. We thank Anja Malchin and Ramona Voshage for running the Stata do-files and checking the log-files for violation of privacy. To facilitate replication, the Stata program is available on request from the second author.
Intra-industry Adjustment to Import Competition: Theory and Application to the German Clothing Industry
Article first published online: 28 JUL 2010
© 2010 Blackwell Publishing Ltd
The World Economy
Special Issue: EUROPE SPECIAL ISSUE - HETEROGENEOUS FIRMS IN THE OPEN ECONOMY
Volume 33, Issue 8, pages 1006–1022, August 2010
How to Cite
Raff, H. and Wagner, J. (2010), Intra-industry Adjustment to Import Competition: Theory and Application to the German Clothing Industry. World Economy, 33: 1006–1022. doi: 10.1111/j.1467-9701.2010.01310.x
- Issue published online: 28 JUL 2010
- Article first published online: 28 JUL 2010
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.