Kiel Working Papers, Kiel Institute for World Economics
No 1557:
Intra-Industry Adjustment to Import Competition: Theory and Application to the German Clothing Industry
Horst Raff and Joachim Wagner
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 the average productivity of survivors increases. 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
Keywords: international trade, firm heterogeneity, productivity, clothing industry; (follow links to similar papers)
JEL-Codes: F12,; F15; (follow links to similar papers)
22 pages, September 2009
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