Import Competition and Exit in Business Services Sectors

Farid Toubal, Pamela Bombarda and Fergal McCann

No 8095, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Business services firms are increasingly under pressure from foreign competition. We develop an oligopolistic competition model that studies the effect of trade liberalization on exit and sectoral restructuring in the business services sector. We assume that firms are heterogeneous in their marginal costs, allowing the model to predict domestic M&A and exit by closedown, as well as foreign M&A. The model is brought to detailed French firm-level data on exit and M&A in the business services sector. The empirical analysis confirms that due to greater import penetration, French service firms exit by closedown and by M&A. Contrary to previous findings for manufacturing, we show that imports from high-income countries cause the majority of this exit, helping to inform the ongoing debate regarding the dangers of services trade liberalization.

Keywords: Services trade; Exit; Import competition; Oligopoly; Firm-level data (search for similar items in EconPapers)
JEL-codes: F1 L1 L8 (search for similar items in EconPapers)
Date: 2010-11
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Citations: View citations in EconPapers (4)

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