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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. Bergeaud, Antonin & Schmidt, Juliane & Zago, Riccardo, 2022. "Patents that match your standards: firm-level evidence on competition and innovation," LSE Research Online Documents on Economics 118031, London School of Economics and Political Science, LSE Library.
    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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