Plant-and Firm-Level Evidence on "New" Trade Theories

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By relaxing the assumption of perfect competition, the "new" trade theory has generated a rich body of predictions concerning the effects of commercial policy on price-cost mark-ups, firm sizes, exports, productivity and profitability among domestic producers. This chapter critically assesses the plant- and firm-level evidence on these linkages. Several robust findings are identified. First, mark-ups generally fall with import competition. Second, import-competing firms cut back their production levels when foreign competition intensifies. Third, trade rationalizes production in the sense that markets for the most efficient plants are expanded, but large import-competing firms tend to simultaneously contract. Fourth, exposure to foreign competition often improves intra-plant efficiency. Fifth, firms that engage in international activities tend to be larger, more productive, and supply higher quality products. Finally, the short-run and long-run effects of commercial policy on exports and market structure depend upon initial conditions, sunk entry costs, and the extent of firm heterogeneity.

Original languageEnglish (US)
Title of host publicationHandbook of International Trade
PublisherBlackwell Publishing Ltd
Number of pages28
ISBN (Print)0631211616, 9780631211617
StatePublished - Jan 21 2008

All Science Journal Classification (ASJC) codes

  • Economics, Econometrics and Finance(all)


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