Globalisation and firm exit: differences between small and large firms

Italo Colantone (), K. Coucke and L. Sleuwaegen
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L. Sleuwaegen: Vlerick Leuven Gent Management School

Vlerick Leuven Gent Management School Working Paper Series from Vlerick Leuven Gent Management School

Abstract: The effects of increasing import competition on output displacement and exit of heterogeneousdomestic firms are investigated within the context of an oligopolistic rivalry model.The displacement effect is found to be stronger for large "output flexible" firms, while small"cost flexible" ones are less affected by increasing import pressure. Extending the model to allow for product heterogeneity between domestic and foreign firms, we also find that product differentiation lowers the displacement effect. The theoretical findings are supported at the empirical level by the analysis of firm exit dynamics for 12 manufacturing sectors in 8 European countries, from 1997 to 2003. In particular, we find that the exit of large firms is sensitive to the shock of increasing import penetration from low-wage countries. Small firms in the same industries are instead only affected by marginal trade integration with respect to neighbouring EU countries and other relatively wealthy trading partners. Hence this paper shows, for the first time, that firms of different size might be affected differently by diverse sources of import competition. Implications on firms’ strategic planning and public policy are discussed.

Keywords: oligopolistic competition; low-wage country import competition; firm exit (search for similar items in EconPapers)
JEL-codes: F12 F14 L11 L25 L60 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2008-06-18
New Economics Papers: this item is included in nep-bec, nep-com, nep-cse, nep-eec, nep-ent and nep-int
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Related works:
Working Paper: Globalization and Firm Exit: Differences Between Small and Large Firms (2010)
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