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Resisting Foreign Competition – A Case Study of France and Germany

Author

Listed:
  • Thannaletchimy Thanagopal

    (SEURECO-ERASME Laboratory, Paris, France)

  • Pierre Le Mouel

    (SEURECO-ERASME Laboratory, Paris, France)

Abstract

This article incorporates both the new trade and the endogenous growth theories to study the determinants of import volumes of France and Germany so as to explain their individual industrial competitiveness strategies – price or quality competition. This article is different because it studies competitiveness of a country’s products by considering its resistance to foreign competition rather than considering exports of these countries. Using disaggregated bilateral data for 16 European countries including Japan and the United States across 15 distinctly classified industries over a period of 20 years (between 1991 and 2010), we use an import demand equation to compare the relative product performances of France and Germany vis-à-vis their exporting competitors. To eliminate the price endogeneity problem, we implement a Two Stage Least Squares (2SLS) estimation technique using the cost of production (which includes the unit labor cost and costs of capital and intermediates), mark-up and distance as instrumental variables for import prices. We also proxy innovation and hence product quality using research and development (R&D) intensity, reported in Product Field. We find that French products are highly substitutable vis-à-vis their foreign competitors in contrast to German products. Germany adopts better quality competitive strategies, thus rendering their products less substitutable and highly differentiated vis-à-vis their foreign counterparts.

Suggested Citation

  • Thannaletchimy Thanagopal & Pierre Le Mouel, 2014. "Resisting Foreign Competition – A Case Study of France and Germany," Croatian Economic Survey, The Institute of Economics, Zagreb, vol. 16(1), pages 75-108, April.
  • Handle: RePEc:iez:survey:ces-v16_04-2014_thanagopal-le-mouel
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    References listed on IDEAS

    as
    1. Carone, Giuseppe, 1996. "Modeling the U.S. demand for imports through cointegration and error correction," Journal of Policy Modeling, Elsevier, vol. 18(1), pages 1-48, February.
    2. Lionel Fontagné & Guillaume Gaulier & Soledad Zignago, 2007. "Specialisation across Varieties within Products and North-South Competition," Working Papers 2007-06, CEPII research center.
    3. Hélène Erkel‐Rousse & Daniel Mirza, 2002. "Import price elasticities: reconsidering the evidence," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 35(2), pages 282-306, May.
    4. Matthieu Crozet & Hélène Erkel‐Rousse, 2004. "Trade Performances, Product Quality Perceptions, and the Estimation of Trade Price Elasticities," Review of International Economics, Wiley Blackwell, vol. 12(1), pages 108-129, February.
    5. Juan Carlos Hallak & Peter K. Schott, 2011. "Estimating Cross-Country Differences in Product Quality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(1), pages 417-474.
    6. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
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    Citations

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    Cited by:

    1. Thanagopal, Dr. Thannaletchimy & Housset, Félix, 2017. "A quality-adjusted AIDS model in the study of French imports," International Economics, Elsevier, vol. 151(C), pages 85-99.

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    More about this item

    Keywords

    competitiveness; product quality; innovation efforts; 2SLS; France; Germany;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F49 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Other

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