When the Floodgates Open: 'Northern' Firms' Response to Removal of Trade Quotas on Chinese Goods

Hale Utar
2013 Social Science Research Network  
Using the dismantling of the Multi-fibre Arrangement quota system after China's WTO membership, within firms adjustments to intensified low-wage competition is analyzed at employment, investment and product margins. Employing Danish employer-employee matched data supplemented with transaction-level data from between 1995 and 2007, the analysis shows a significant increase in skill and capital intensity associated with downsizing in response to heightened competition. When education levels of
more » ... cation levels of employees are analyzed within occupation categories, a disproportionate increase in skill intensity is found to occur in the most basic skill category of jobs. An associated significant increase in average wages of the basic skill category jobs is also documented. Constructing firm-specific and time variable new product introduction measures, firms are found to refocus their innovative efforts away from goods where China's competitive advantage increases as a result of the quota removal. As 'affected' firms are also found to drop their existing products disproportionately, a weakly significant negative effect is found on product scopes. The results support theories that indicate compositional changes in the scopes and operations of Northern firms in response to competition from South.
doi:10.2139/ssrn.2285379 fatcat:aoqer4sfyne4ligxbjn5h3rroa