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Escaping Import Competition in China

Ana Cecília Fieler and Ann Harrison ()

No 24527, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In a stylized model, firms differentiate their products to escape import com- petition. Facing a nested CES demand, each firm chooses between a nest with competitors and its own nest under higher costs. The profit from differentiation is an inverted U-shaped function of firm productivity. It increases with import competition and is lower than the social benefit. Differentiation increases the gains from trade. In establishment data from China spanning its 2001 WTO accession, tariff cuts are associated with increases in productivity, introduction of new goods, switches to skill-intensive sectors. Markups in the model explain the large increases in revenue productivity among small firms and input suppliers.

JEL-codes: F12 F13 F14 (search for similar items in EconPapers)
Date: 2018-04
New Economics Papers: this item is included in nep-bec, nep-cna and nep-int
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