Chinese competition and product variety of Indian firms

Research output: Contribution to journalArticle

Authors

External organisations

  • Lancaster University

Abstract

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.

Details

Original languageEnglish
Pages (from-to)367-395
Number of pages29
JournalJournal of Comparative Economics
Volume47
Issue number2
Early online date12 Feb 2019
Publication statusE-pub ahead of print - 12 Feb 2019

Keywords

  • Chinese competition, Domestic market, Product drop, Small firms

ASJC Scopus subject areas