NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Escaping Import Competition in China

Ana Cecília Fieler, Ann Harrison

NBER Working Paper No. 24527
Issued in April 2018, Revised in January 2020
NBER Program(s):Environment and Energy Economics, International Trade and Investment

In a stylized model, firms differentiate their products to escape import com- petition. Facing a nested CES demand, each firm chooses between a nest with competitors and its own nest under higher costs. The profit from differentiation is an inverted U-shaped function of firm productivity. It increases with import competition and is lower than the social benefit. Differentiation increases the gains from trade. In establishment data from China spanning its 2001 WTO accession, tariff cuts are associated with increases in productivity, introduction of new goods, switches to skill-intensive sectors. Markups in the model explain the large increases in revenue productivity among small firms and input suppliers.

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Document Object Identifier (DOI): 10.3386/w24527

 
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