Surviving globalisation

Abstract

This paper investigates the effects of international trade on firms' strategies for industry exit, either via closedown, switching industry or being acquired. We use a rich dataset of Swedish firms that extends over two decades to track firm choices between alternative strategies. We find that higher levels of international competition increase the probability of exit by merger and closedown. If trade is more intra-industry in character, the effect of import penetration on the probability of exit is less. The probability of exit by switching industry is higher in revealed comparative disadvantage industries. Finally, we find that the geographical source of international competition is important, the effects of trade on exit being strongest when trading partners are other OECD countries.

Globalization drives strategic product switching

“…These results add a new dimension to previous findings on industrial countries which focus on product switching as a defensive strategy against low-cost imports. In contrast to the related literature (Bernard et al 2006;Greenaway et al 2008), import competition plays no significant role in the product switching behaviour of Estonian firms. Interestingly, we find that the conditions on export markets matter predominantly for switches within the same industry or what we call product switches.…”

“…While the theoretical literature on multi-product firms suggests that trade liberalization induces firms to shed marginally profitable products and to focus on their core products (e.g. Eckel and Neary 2010), recent empirical work has shown that firms also switch their core product quite frequently in response to increased pressures from international trade (Bernard et al 2006;Greenaway et al 2008). However, these papers focus on only one aspect of trade (import competition), ignoring firm dynamics induced by profitable opportunities in export markets.…”

“…Although four-digit codes-broken down in 640 classes-are not true products in the strictest sense of the word, this is the most detailed classification we have in our data. This notation has also been used in Bernard et al (2006) and Greenaway et al (2008). 4 For an overview of the empirical literature, see Tybout (2003) and Bernard et al (2007a).…”

Productivity and Competitiveness

“…Empirical studies using firm-level data to investigate these links abound, and some of the papers covered in this survey at least touch upon other issues besides productivity. Studies for Nordic countries from this literature that do not discuss productivity but other dimensions of firm performance include the following: Survival (Bandick (2010) on foreign ownership and plant survival in Sweden; for foreign acquisition in Sweden; Greenaway et al (2008aGreenaway et al ( , 2009) for international trade and foreign ownership with relation to firm exit in Sweden); employment for foreign acquisition in Sweden; Deschryvere and Kotiranta (2008) for offshoring of Finnish firms; Ekholm and Hakkala (2008) Exports, imports Importing and exporting positively associated with productivity, firms that import and export are most productive. Evidence for self-selection into importing and exporting but no learning from trade effects.…”

The Merger of Populations, the Incidence of Marriages, and Aggregate Unhappiness

“…Beckfield (2009), who studies European integration and individual levels of income, reports reduced betweencountry income inequality but increased within-country income inequality. The inconclusiveness of these outcomes also pervades research on firms: whereas Qiu and Zhou (2006) report increased profitability following the international merger of firms, Greenaway et al (2008) point to a greater likelihood of a closedown when a firm faces tighter competition in a liberalized market. An interesting strand of literature deals with the merger of firms and workplaces, employing "social identity theory" (originally developed by Tajfel and Turner 1979).…”