Heterogeneous responses to competitive shocks: firm-level evidence from Chile

Abstract

This paper empirically characterizes rm-level responses to a competitive shock given by rising import competition from China. We use microdata on the universe of Chile's manufacturing rms during 1995-2006. For identi cation we exploit the fact that Chinese import penetration (CIP) increased di erently over time across manufacturing industries. We use chinese export growth in high-income industry-country pairs as instruments for CIP. Average CIP across industries increased from 1.5% in 1995 to 10.1% in 2006. Our results suggest that rms in industries more exposed to rising CIP dismiss more workers, reduce their sales and face a higher probability of exiting the market relative to comparable rms in less exposed industries. All these e ects are less pronounced for more productive rms.