Foreign Entry and Heterogeneous Growth of Firms: Do We Observe “Creative Destruction” in China?

Paul Deng () and Gary Jefferson

MPRA Paper from University Library of Munich, Germany

Abstract: We adopt the framework of Schumpeterian creative destruction formalized by Aghion et al. (2009) to analyze the impact of foreign entry on the productivity growth of domestic firms. In the face of foreign entry, domestic firms exhibit heterogeneous patterns of growth depending on their technological distance from foreign firms. Domestic firms with smaller technological distance from their foreign counterparts tend to experience faster productivity growth, while firms with larger technological distance tend to lag further behind. We test this hypothesis using a unique firm-level data of Chinese manufacturing. Our empirical results confirm that foreign entry indeed generates strong heterogeneous growth patterns among domestic firms.

Keywords: Firm Heterogeneity; Creative Destruction; Productivity Growth; TFP; FDI; Entry; Competition; Chinese Economy (search for similar items in EconPapers)
JEL-codes: D22 F21 (search for similar items in EconPapers)
Date: 2011-06-01
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Citations: View citations in EconPapers (2)

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