Nakhoda, Aadil (2012): The effect of foreign competition on product switching activities: A firm level analysis.
Download (786kB) | Preview
Pressure from foreign competition on the decision to introduce new products or on production costs may influence firms to particpate in product switching activities. Firms switch products if they either add or drop products within their product range. I test whether pressure from foreign competition is likely to influence firms that concurrently add and drop (churn) products rather than firms that i) do not undertake any product switching activity, ii) add products only, or iii) drop products only. Firms pay substantial fixed costs to switch products and their productivity levels are likely to determine such ability. I consider whether firms that invest in research and development activities and export their final products are likely to churn products as they are able to generate greater productivity levels than firms that undertake either one of the two activities. As firms constrained by the lack of adequately educated workers may have workers who cannot adapt to different set of skills necessary for product switching activities, I consider whether such firms are likely to churn products as they are exposed to pressure from foreign competition in comparison to firms not constrained by the lack of adequately educated workers. In addition, the contract-intensive nature of an industry can also dictate whether firms exposed to foreign competition can churn products as they may be constrained due to their contract obligations with their buyers and suppliers. The results indicate that pressure from foreign competition is likely to influence the decision of firms to churn products rather than add products only or undertake neither product switching activities. There is little evidence that firms facing pressure from foreign competition will churn products rather than drop products only, except for the most productive firms that invest in research and development activities and export participation.
|Item Type:||MPRA Paper|
|Original Title:||The effect of foreign competition on product switching activities: A firm level analysis|
|Keywords:||Foreign competition, product switching, trade liberalization, corporate strategies|
|Subjects:||D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior: Theory
M - Business Administration and Business Economics; Marketing; Accounting > M1 - Business Administration > M11 - Production Management
F - International Economics > F1 - Trade > F13 - Trade Policy; International Trade Organizations
|Depositing User:||Aadil Nakhoda|
|Date Deposited:||01. Jun 2012 00:45|
|Last Modified:||13. Feb 2013 01:28|
Abraham, F. and Van Hove, J. (2010). Can Belgian Firms Cope with the Chinese dragon and the Asian Tigers ? The Export Performance of Multi-Product firms on Foreign Markets. National Bank of Belgium Working Paper 204.
Acemoglu, D. (2000). Technical Change, Inequality, and the Labor Market. NBER Working Paper 7800
Aghion, P. and Schankerman, M. (1999). Competition, Entry, and the Social Returns to Infrastructure in Transition Economies. Economies of Transition. Vol 7, No. 1. pp 79-101.
Aghion, P. (2002). Schumpeterian Growth Theory and the Dynamics of Income Inequality. Econometrica. Vol 70, No. 3. pp 855-882.
Aghion, P., Carlin, W., and Schaffer, M. (2002). Competition, Innovation, and Growth in Transition: Exploring the Interactions between Policies. William Davidson Institute Working Paper No 501.
Aghion, P., Bloom, N., Blundell, R., Griffith, R. and Howitt, P. (2005). Competition and Innovation: An Inverted- U Relationship. The Quarterly Journal of Economics. Vol 120 No. 2, pp 701-728.
Allanson, P. and Montagna, C. (2005). Multiproduct Firms and Market Structure: An Explorative Application to the Product Life Cycle. International Journal of Industrial Organization. Vol 23, No. 7-8. pp 587-597.
Atkeson, A. and Burstein, A. (2007). Innovation, Firm Dynamics, and International Trade. NBER Working Paper 13326.
Aw, B. and Lee, Y. (2009). Product Choice and Market Competition: The Case of Multiproduct Electronic Plants in Taiwan. Scandinavian Journal of Economics. Vol 111, No. 4. pp 711-740.
Aw, B., Roberts, M., and Xu, D. (2009). R&D Investments, Exporting and Product Dynamics. NBER Working Paper 14670.
Aw, B., Roberts, M., and Winston, T. (2009). Export Market Participation, Investments in R&D, and Worker Training, and the Evolution of Firm Productivity. The World Economy. Vol. 30, No. 1. pp 83-104.
Ayyagari, M., Demirguc-Kunt, A., and Maksimovic, V. (2011). Firm Innovation in Emerging Markets: The Role of Finance, Governance and Competition. Journal of Financial and Quantitative Analysis. Vol 46, No.6. pp 1545-1580.
Badia, M., Slootmaekers, V. and Van Beveren, I. (2008). Globalization Drives Strategic Product Swtiching. IMF Working Paper 08/246.
Bas, M. and Bombarda, P. (2011). Unilateral trade reform, Market Access and Foreign Competition: the Patterns of Multi-Product Exporters. CEPII Working Paper 2011-18.
Bernard, A., Redding, S. and Schott, P. (2010). Multiple-Product Firms and Product Switching. American Economic Review. Vol 100, No. 1. pp 70-97.
Berthou, A. and Fontagne, L. (2009). How do Multi-Product Exporters React to a Change in Trade Costs. EFIGE Working Paper 16.
Blonigen, B. and Soderbery, A. (2010). Measuring the Benefits of Foreign Product Variety with an Accurate Variety Set. Journal of International Economics. Vol 82. pp 168-180.
Brambilla, I., Hale, G., and Long, C. (2009). Foreign Direct Investment and the Incentive to Innovate and Imitate. Scandinavian Journal of Economics. Vol 111, No. 4. pp 835-861.
Bratti, M. (2011). Are Exporters More Likely to Introduce Product Innovations?. CSLD Development Studies Working Papers No 306.
Bustos, Paula. (2011). Trade Liberalization, Exports, and Technology Upgrading: Evidence on the Impact of MERCOSUR on Argentinian Firms. American Economic Review. Vol. 101, No. 1. pp 304-340
Constantini, J. and Melitz, M. 2008. The Dynamics of Firm-Level Adjustment to Trade Liberalization. "Organization of Firms in the Global Economy". ed. Helpman, E., Marin, D. and Verdier, T. Cambridge: Harvard University Press.
De Loecker, J., Goldberg, P., Khandelwal, A., and Pavcnik, N. (2012). Prices, Markups and Trade Reform. Unpublished manuscript.
De Loecker, J. (2011). Product Differentiation, Multiproduct Firms, and Estimating the Impact of Trade Liberalization on Productivity. Econometrica. Vol, 79, No. 5. pp 1407-1451
Dhingra, S. (2010). Trading Away Wide Brands for Cheap Brands. mimeo, University of Wisconsin-Madison.
Eckel, C., Iacovone, L., Javorcik, B., and Neary, J. P. (2010). Multi-Product Firms at Home and Away: Cost Versus Quality Based Competence. Economics Series Working Papers 522. University of Oxford, Department of Economics
Eckel, C. and Neary, J. P. (2010). Multi-Product Firms and Flexible Manufacturing in the Global Economy. Review of Economic Studies. Vol 77. pp 188-217.
Enterprise Surveys. (2011). http://www.enterprisesurveys.org. The World Bank.
Falvey, R., Greenaway, D., and Silva, J. (2008). International Competition, Returns to Skill and Labour Market Adjustment. GEP Research Paper 2008/10. University of Nottingham
Feenstra, R. and Ma, H. (2007). Optimal Choice of Product Scope for Multiproduct Firms Under Monopolistic Competition. NBER Working Paper 13703.
Girma, S. Gorg, H. and Hanley, A. (2008). R&D and Exporting: A Comparison of British and Irish Firms. Vol 144, No. 4. pp 750-773.
Goldberg, I., Trajtenberg, M., Jaffe, A., Muller,T., Sunderland, J.and Armas, A. (2006). Public Financial Support For Commercial Innovation: Europe and Central Asia Knowledge Economy Study Part I. Europe and Central Asia Chief Economist's Regional Working Paper Series. Vol 1, No. 1
Goldberg, P., Khandelwal, A., Pavcnik, N., and Topalova, P. (2008). Multi-Product Firms and Product Turnover in the Developing World: Evidence From India. NBER Working Paper 14127.
Gorodnichenko, Y., Svejnar, J. and Terrell, K. (2008). Globalization and Innovation in Emerging Markets. IPC Working Paper Series Number 76.
Grossman, V. (2003). Firm Size and Diversification: Asymmetric Multiproduct Firms Under Cournot Competition. CESIFO Working Paper No. 1047.
Head, K. and Mayer, T. (2004). Market Potential and the Location of Japanese Firms in the European Union. The Review of Economics and Statistics. Vol 86, No. 4. pp 959-972.
Iacovone, L. and Javorcik, B. (2010). Multi-Product Exporters: Product Churning, Uncertainty and Export Discoveries. The Economic Journal. Vol 120. pp 481-499.
Kawakami, A. and Miyagawa, T. (2010). Product Switching and Firm Performance in Japan. RIETI Discussion Paper Series 10-E-043.
Lileeva, A. and Trefler, D. (2010). Improved Access to Foreign Market Raises Plant-Level Productivity... For Some Plants. The Quarterly Journal of Economics. Vol 125, No 3. pp 1051-1099.
Liu, R. and Rosell, C. (2008). Import Competition, Multi-product Firm and Basic Innovation. mimeo. School of Business, University of Alberta.
Manova, K., Wei, S. and Zhang, Z. (2011). Firm Exports and Multinational Activity under Credit Constraints. NBER Working Paper 16905.
Mayer, T. Melitz, M. and Ottaviano, G. (2011). Market Size, Competition, and the Product Mix of Exporters. NBER Working Paper 16959.
Mayer, T. (2009). Market Potential and Development. CEPII Working Paper No 2009-24.
Melitz, M. (2003). The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity. Econometrica. Vol 71, No. 6. pp 1695-1725.
Mitra, P. and Selowsky,M. (2002). Lessons from a Decade of Transition in Eastern Europe and the Former Soviet Union. Finance and Development. Vol, 39. No. 2. pp 48-51.
Nakhoda, A. (2012). Are Exporters Likely to be Importers of Foreign Inputs? Firm-level Study at the Extensive and Intensive Margins. mimeo, UC Santa Cruz.
Nardis, S. and Pappalardo, C. (2009). Export, Productivity and Product Switching: the Case of Italian Manufacturing Firms. Istituto Di Studi E Analisi Economica. Working Paper 110.
Nocke, V. and Yeaple, S. (2010). Globalization and Multiproduct Firms. CEPR Discussion Paper No 6948.
Nunn, N. (2007). Relationship-Specificity, Incomplete contracts, and the Pattern of Trade. Quarterly Journal of Economics, Vol, 122 No. 2. pp 569-600.
Redding, S. and Venables, A. (2004). Economic Geography and International Inequality. Journal of International Economics. Vol 62. pp 53-82.
Shapiro, C. (2011). Competition and Innovation: Did Arrow Hit the Bull's Eye? In Josh Lerner and Scott Stern (Eds).The Rate and Direction of Inventive Activity Revisited. NBER.
Topalova, P. (2004). Trade Liberalization and Firm Productivity: The Case of India. International Monetary Fund Working Paper No. 04/28.
World Development Indicators. (2012). The World Bank