March 28th, 2019 “Kraks Fond Seminar”

Presenter: Joakim Gullstrand, Lund University

March 28th, 2019 at 11.00-12.00

Where: Kraks Fond, Frederiksholms Kanal 30, seminar room

 

Escaping import competition: Location and Differentiation

This paper focuses on the effects of import competition by using the framework of De
Loecker et al. (2016) to divide firms’ response into three parts on product level; marginal
cost, markup and price. We thereafter investigate how firms may escape import competition
using detailed firm-location-product information of Swedish producers and importers of
intermediate goods. We find strong evidence of the importance of distance to importing firms. Hence using nation-wide import exposure fails to consider the spatial pattern of firm location within a nation. We show that producers of intermediate goods face an increased import competition through both an increased import value and a relocation of importing firms, and neglecting the latter part leads to an underestimated import exposure of around one-third. We also find strong evidence of a highly heterogeneous response pattern. Productive firms respond more to import competition when it comes to improving their efficiency by lowering marginal cost of production, and this improvements are transmitted to buyers by a lower price although some of the improvements are soaked up by a higher markup. Finally we find evidence of a heterogeneous response depending on the quality of the imported good. Imports of higher quality have a pro-competitive effect since they have a downward pressure on markups, but high quality producers seem to escape this pressure.

JEL classification: F14
Keywords: Import competition, distance, firm-product performance

 

 

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