Working Paper: NBER ID: w22840
Authors: Lorenz Kueng; Nicholas Li; Mujeung Yang
Abstract: How do firms in high-income countries adjust to emerging market competition? We estimate how a representative panel of Canadian firms adjusts innovation activities, business strategies, and exit in response to large increases in Chinese imports between 1999 and 2005. On average, process innovation declines more strongly than product innovation. In addition, initially more differentiated firms that survive the increase in competition have better performance ex-post, but are ex-ante more likely to exit. Differentiation therefore does not ensure insulation against competitive shocks but instead increases risk.
Keywords: international competition; innovation; business strategy
JEL Codes: F14; L25; O33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Low-cost strategies (D49) | Reduced innovation efforts (O36) |
| Innovation strategies (O36) | Higher exit probabilities under competitive pressures (D43) |
| Specialization in local markets (R32) | More likely to exit but less affected in market share losses if they survive (L19) |
| Increased Chinese import competition (F14) | Contraction in market share and employment for Canadian manufacturing firms (N62) |
| Increased Chinese import competition (F14) | Increased likelihood of firm exit (G33) |
| Increased Chinese import competition (F14) | Reduction in innovation activities (O39) |