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Globalization Drives Strategic Product Switching

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  • Ms. Marialuz Moreno Badia
  • Veerle Slootmaekers
  • Ilke Van Beveren

Abstract

Using firm-level data for Estonia for the years 1997-2005, we analyze the impact of international competition on firm dynamics, considering both firm closedown and product switching. We contribute to the literature in two important ways: (1) this is the first paper to study the determinants of exit and product switching in an emerging market; and (2) we consider explicitly the role of export opportunities. Our results indicate that globalization does not affect firm exit significantly but it is an important factor explaining product switching. Previous studies on industrial countries have shown that product switching has been a defensive strategy against low-cost imports. In contrast, our results suggest that Estonian firms have switched products as an offensive strategy to take advantage of the export opportunities created by trade liberalization.

Suggested Citation

  • Ms. Marialuz Moreno Badia & Veerle Slootmaekers & Ilke Van Beveren, 2008. "Globalization Drives Strategic Product Switching," IMF Working Papers 2008/246, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2008/246
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    2. Abdelkrim Araar & Yesuf Mohammednur Awel & Jonse Bane Boka & Hiywot Menker & Ajebush Shafi & Eleni Yitbarek & Mulatu Zerihun, 2019. "Impact of Credit and Training on Enterprise Performance: Evidence from Urban Ethiopia," Working Papers PMMA 2019-13, PEP-PMMA.
    3. Zajc Kejžar, Katja, 2016. "Shutdown versus M&A: An empirical investigation of Slovenian incumbent firms’ responses to foreign competition," Economic Systems, Elsevier, vol. 40(2), pages 247-259.
    4. Nakhoda, Aadil, 2012. "The effect of foreign competition on product switching activities: A firm level analysis," MPRA Paper 39167, University Library of Munich, Germany.
    5. repec:lic:licosd:20908 is not listed on IDEAS
    6. Arjan Lejour, 2015. "The Duration of Dutch Export Relations: Decomposing Firm, Country and Product Characteristics," De Economist, Springer, vol. 163(2), pages 155-176, June.
    7. Veerle Miranda & Marialuz Moreno Badia & Ilke Van Beveren, 2012. "Globalization drives strategic product switching," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 148(1), pages 45-72, April.
    8. ITO Tadashi & MATSUURA Toshiyuki, 2022. "China shock on Japanese firms: Firms’ differential reactions to the increase in Chinese imports," Discussion papers 22036, Research Institute of Economy, Trade and Industry (RIETI).
    9. Andrew B. Bernard & Stephen J. Redding & Peter K. Schott, 2010. "Multiple-Product Firms and Product Switching," American Economic Review, American Economic Association, vol. 100(1), pages 70-97, March.

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    More about this item

    Keywords

    WP; firm level; sunk cost; a number of firm; comparative advantage; firm decision; product switching; Four-Digit product; export opportunity; determinants of firm dynamics; sector distribution; Exports; Commodity markets; Imports; Competition; Manufacturing; Global;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • F18 - International Economics - - Trade - - - Trade and Environment
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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