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

Deng, Paul and Jefferson, Gary (2011): Foreign Entry and Heterogeneous Growth of Firms: Do We Observe “Creative Destruction” in China?

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Firm Heterogeneity, Creative Destruction, Productivity Growth, TFP, FDI,Entry, Competition, Chinese Economy
• Subjects: D - Microeconomics > D2 - Production and Organizations > D22 - Firm Behavior: Empirical Analysis; F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment ; Long-Term Capital Movements

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