Colantone, Italo

Coucke, Kristien

Sleuwaegen, Leo

English

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

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Globalisation and firm exit: Differences between small and large firms

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Globalisation and firm exit: Differences between small and large firms

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