TY - JOUR

T1 - Chinese competition and product variety of Indian firms

AU - Chakraborty, Pavel

AU - Henry, Michael

N1 - This is the author’s version of a work that was accepted for publication in Journal of Comparative Economics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Comparative Economics 47,2, 2019 DOI: 10.1016/j.jce.2018.12.003

PY - 2019/6/1

Y1 - 2019/6/1

N2 - Using detailed firm-product-year data across manufacturing industries in India, and exploiting the exogenous nature of China's entry into the WTO in 2001, we investigate the link between the impact of import penetration from China on the product variety of Indian manufacturing firms. We find: (i) robust and significant effects of product drop, with the effect coming only from competitive pressure in the domestic market; (ii) robust evidence of product drop or ‘creative destruction’ only for firms belonging to the lower-half of the size distribution; (iii) firms drop their peripheral/marginal products and concentrate on the core ones; and (iv) the result is strongest for firms producing intermediate goods. For an average Indian manufacturing firm, a 10 percentage point increase in India's Chinese share of imports in the domestic market reduces the product scope of firms by 1.7–4.4%. In contrast, we find positive effects on product scope when firms are importing intermediate goods. We also find evidence of significant productivity effects and within-firm factor reallocation. Our results are consistent to a battery of robustness checks and IV estimation.

AB - Using detailed firm-product-year data across manufacturing industries in India, and exploiting the exogenous nature of China's entry into the WTO in 2001, we investigate the link between the impact of import penetration from China on the product variety of Indian manufacturing firms. We find: (i) robust and significant effects of product drop, with the effect coming only from competitive pressure in the domestic market; (ii) robust evidence of product drop or ‘creative destruction’ only for firms belonging to the lower-half of the size distribution; (iii) firms drop their peripheral/marginal products and concentrate on the core ones; and (iv) the result is strongest for firms producing intermediate goods. For an average Indian manufacturing firm, a 10 percentage point increase in India's Chinese share of imports in the domestic market reduces the product scope of firms by 1.7–4.4%. In contrast, we find positive effects on product scope when firms are importing intermediate goods. We also find evidence of significant productivity effects and within-firm factor reallocation. Our results are consistent to a battery of robustness checks and IV estimation.

KW - Chinese competition

KW - Domestic market

KW - Product drop

KW - Small firms

U2 - 10.1016/j.jce.2018.12.003

DO - 10.1016/j.jce.2018.12.003

M3 - Journal article

AN - SCOPUS:85061378873

VL - 47

SP - 367

EP - 395

JO - Journal of Comparative Economics

JF - Journal of Comparative Economics

SN - 0147-5967

IS - 2

ER -