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Opposing firm-level responses to the China shock: horizontal competition versus vertical relationships

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  • Aghion, Philippe
  • Bergeaud, Antonin
  • Lequien, Matthieu
  • Melitz, Marc J.
  • Zuber, Thomas

Abstract

We decompose the "China shock" into two components that induce different adjustments for firms exposed to Chinese exports: a horizontal shock affecting firms selling goods that compete with similar imported Chinese goods, and a vertical shock affecting firms using inputs similar to the imported Chinese goods. Combining French accounting, customs, and patent information at the firm-level, we show that the horizontal shock is detrimental to firms' sales, employment and innovation. Moreover, this negative impact is concentrated on low-productivity firms. By contrast, we find a positive effect - although often not significant - of the vertical shock on firms' sales, employment and innovation.

Suggested Citation

  • Aghion, Philippe & Bergeaud, Antonin & Lequien, Matthieu & Melitz, Marc J. & Zuber, Thomas, 2021. "Opposing firm-level responses to the China shock: horizontal competition versus vertical relationships," LSE Research Online Documents on Economics 113915, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:113915
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    Cited by:

    1. David Autor & David Dorn & Gordon Hanson, 2021. "On the Persistence of the China Shock," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 52(2 (Fall)), pages 381-476.
    2. Dorn, David & Levell, Peter, 2021. "Trade and Inequality in Europe and the US," CEPR Discussion Papers 16780, C.E.P.R. Discussion Papers.
    3. Antonin Bergeaud & Julia Schmidt & Riccardo Zago, 2022. "Patents that match your standards: firm-level evidence on competition and innovation," POID Working Papers 040, Centre for Economic Performance, LSE.
    4. Akira Sasahara, 2022. "The Empirics of the China Trade Shock: A Summary of Estimation Methods and A Literature Review," Keio-IES Discussion Paper Series 2022-008, Institute for Economics Studies, Keio University.
    5. Olimpia Cutinelli Rendina, 2023. "Lobbying or Innovation: Who Does What Against Foreign Competition," Working Papers halshs-03970033, HAL.
    6. Olimpia Cutinelli Rendina, 2023. "Lobbying or Innovation: Who Does What Against Foreign Competition," PSE Working Papers halshs-03970033, HAL.

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    More about this item

    Keywords

    competition shock; patent; firms; import;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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