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The Dynamics of Firms ’ Product Portfolio in Response to Low-Cost Country Competition: An Empirical Assessment ∗

By Claire Lelarge and Benjamin Nefussi


We rely on a new dataset containing detailed information about firm level production decomposition and innovation activities in order to investigate whether the observed aggregate reallocation of French production may be driven (at least partly) by firm level product portfolio strategies, in particular when firms experience a high competitive pressure arising from low-cost countries. Using an instrumental variable strategy, we obtain that firms experiencing a high low-cost country competitive pressure are significantly more diversified in their productions, and are involved in (either) more frequent or higher reallocation of their product portfolios towards products they were not previously producing. Further analysis shows that more productive firms only are able to introduce true product innovations, which may explain why they achieve higher survival rates

Topics: International Trade, R&D, Heterogeneous Firms, Product Differentiation
Year: 2009
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