Increased Import Competition Research Articles

Task Trade and the Wage Effects of Import Competition

Do job characteristics modulate the relationship between import competition and the wages of workers who perform those jobs? This paper tests the claim that workers in occupations featuring highly routine tasks will be more vulnerable to low-wage country import competition. Using data from the US Census Bureau, we construct a pooled cross-section (1990, 2000, and 2007) of more than 1.6 million individuals linked to the establishment in which they work. Occupational measures of vulnerability to trade competition – routineness, analytic complexity, and interpersonal interaction on the job – are constructed using O*NET data. The linked employer-employee data allow us to model the effect of low-wage import competition on the wages of workers with different occupational characteristics. Our results show that low-wage country import competition is associated with lower wages for US workers holding jobs that are highly routine and less complex. For workers holding nonroutine and highly complex jobs, increased import competition is associated with higher wages. Finally, workers in occupations with the highest and lowest levels of interpersonal interaction see higher wages, while workers with medium-low levels of interpersonal interaction suffer lower wages with increased low-wage import competition. These findings demonstrate the importance of accounting for occupational characteristics to more fully understand the relationship between trade and wages, and suggest ways in which task trade vulnerable occupations can disadvantage workers even when their jobs remain onshore.

Losing by Less? Import Competition, Unemployment Insurance Generosity, and Crime

We explore the extent to which increased import competition affected crime in US labor markets between 1991 and 2006, and whether access to unemployment insurance attenuated this relationship. In the average labor market, property crime rates rose by 3.4 percent following an interquartile increase in import competition. Increasing unemployment insurance generosity by one standard deviation, however, mitigated over half of the increase. A simple cost-benefit analysis indicates that 4.5-13 percent of the costs of increasing unemployment insurance generosity were recovered in the form of lower crime rates. This highlights a new and important positive externality of unemployment insurance.

Worker-Level Consequences of Import Shocks

We analyse the effects of imports on employment and earnings by distinguishing between import competition in final products and firms' use of imports in production (offshoring). We use Finnish worker-firm data merged with product-level trade data. We focus on Chinese imports and instrument them by changes in China's share of world exports to other EU countries. Both types of importing increase the job loss risk for all workers and, in particular, for workers in production occupations. An increase in import competition has larger negative effects than an increase in offshoring. Production workers suffer the largest earnings losses, while for high- skilled workers the wage-effect is positive.

Trade Competition, Technology and Labour Reallocation

This paper provides new evidence on the reallocation of workers across firms and industries with different technologies in response to increased import competition from developing countries. Using employer-employee matched data for the Swedish manufacturing sector, we find increased assortative matching of workers in ICT (information and communication technologies) intensive industries, that is, high(low)-wage workers sort into high(low)-wage firms. Industries with low ICT intensity do not exhibit these sorting patterns. A labour market matching model explains the increased assortative matching in ICT intensive industries in response to stronger import competition through an increase in the relative demand for qualified workers.

The Hidden Cost of Globalization: Import Competition and Mental Distress

We study the effect of import competition on workers’ mental distress. To this purpose, we source information on the mental health of British workers from the British Household Panel Survey, and combine it with measures of import competition in more than 100 industries over 2001-2007. We find an increase in import competition to have a positive, statistically significant, and large impact on mental distress. The effect is strikingly robust to controlling for a wide range of individual, household, and industry characteristics. We show that part of the effect is due to import competition worsening the current labor market situation of individuals, in terms of higher probability of job displacement and lower wage growth. Additionally, and most importantly, we show that import competition worsens mental health also for individuals witnessing no change in observable labor market conditions, by increasing stress on the job and worsening expectations about the future.

Skill‐biased heterogeneous firms, trade liberalization and the skill premium

AbstractWe propose a theory that rising globalization and rising wage inequality are related because trade liberalization raises the demand facing highly competitive skill‐intensive firms. In our model, only the lowest‐cost firms participate in the global economy exactly along the lines of Melitz. In addition to differing in their productivity, firms differ in their skill intensity. We model skill‐biased technology as a correlation between skill intensity and technological acumen, and we estimate this correlation to be large using firm‐level data from Chile in 1995. A fall in trade costs leads to both greater trade volumes and an increase in the relative demand for skill, as the lowest‐cost/most‐skilled firms expand to serve the export market while less skill‐intensive non‐exporters retrench in the face of increased import competition. This mechanism works regardless of factor endowment differences, so we provide an explanation for why globalization and wage inequality move together in both skill‐abundant and skill‐scarce countries. In our model countries are net exporters of the services of their abundant factor, but there are no Stolper‐Samuelson effects because import competition affects all domestic firms equally.

Economic and Household Impacts of Projected Policy Changes for the Irish Agri‐food Sector

AbstractThe policy environment for the Irish agri‐food sector could change rapidly in the coming decade. A potentially positive factor will be the elimination of milk quotas in 2015, although a potentially negative factor will be further trade liberalisation and increased import competition. These changes come on top of the move to decouple direct aids to farmers in 2005 as part of the Mid‐Term Review of the EU's Common Agricultural Policy agreed in 2003. This paper examines these reforms and their impacts on the Irish economy and income distribution using a CGE model particularly rich in detail on the agri‐food sectors, differentiated household groups, and agricultural policy instruments including their links to productive factors and households. The results suggest that the past and projected changes in the policy environment have, in sum, a small positive impact on GDP and household income. However, the gains and losses are unequally distributed across sectors and household groups due to the highly differentiated distribution of support and protection. Although all households generally gain from the sequence of policy reforms in the long run, some experience strong adverse effects from particular reforms and in the medium term.

The Hidden Cost of Globalization: Import Competition and Mental Distress

We study the effect of import competition on workers’ mental distress. To this purpose, we source information on the mental health of British workers from the British Household Panel Survey, and combine it with measures of import competition in more than 100 industries over 2001-2007. We find an increase in import competition to have a positive, statistically significant, and large impact on mental distress. The effect is strikingly robust to controlling for a wide range of individual, household, and industry characteristics. We show that part of the effect is due to import competition worsening the current labor market situation of individuals, in terms of higher probability of job displacement and lower wage growth. Additionally, and most importantly, we show that import competition worsens mental health also for individuals witnessing no change in observable labor market conditions, by increasing stress on the job and worsening expectations about the future.

The Influence of Firm Global Supply Chains and Foreign Currency Undervaluations on US Trade Disputes

AbstractWe apply insights from “new, new” trade theory to explain a puzzling decline in US firm antidumping (AD) filings in an era of persistent foreign currency undervaluations and increasing import competition. Firms exhibit heterogeneity both within and across industries regarding foreign direct investment (FDI). We propose that firms making vertical or resource-seeking investments abroad will be less likely to file AD petitions, and firms are likely to undertake vertical FDI in the context of currency undervaluation. Hence, we argue, the increasing vertical FDI of US firms makes trade disputes far less likely. We use firm-level data to examine the universe of US manufacturing firms and find that AD filers generally conduct no intrafirm trade with filed-against countries. We also find that persistent currency undervaluation is associated over time with increased vertical FDI and intrafirm trade by US multinational corporations (MNCs) in the undervaluing country. Among larger US MNCs, the likelihood of an AD filing is negatively associated with increases in intrafirm trade. In the context of currency undervaluation, we confirm the existing finding that undervaluation is associated with more AD filings. We also find, however, that high levels of intrafirm imports from countries with undervalued currencies significantly decrease the likelihood of AD filings. Our study highlights the centrality of firm heterogeneity in international trade and investment in understanding political mobilization over international economic policy.

Role of Trade in Satisfying U.S. Fresh Fruit and Vegetable Demand

Increases in U.S. consumer incomes result in an increase in imports' share of U.S. consumption. Although U.S. consumers reduce the quantity demanded in response to higher import prices, the reduction is sufficiently inelastic that exporter revenue increases. U.S. Free Trade Agreements have made fresh fruits and vegetables available throughout the year and may also have broadened the U.S. marketing window for imports. Now U.S. food safety regulations favor large operations that can absorb the fixed and seasonal food safety related costs. Therefore, the brunt of the increased import competition is borne by small and medium-size producers.

Trade liberalization, industry concentration and female workers: the case of Egypt

Abstract The gender wage gap increased significantly in Egypt over the last two decades, while female labor force participation rates have steadily declined. This study investigates the relationship between women’s labor market outcomes in the manufacturing sector, the degree of industry concentration, and the trade reforms that took place simultaneously. Results indicate that industry concentration is detrimental to women in the labor market and that the impact of trade liberalization differs depending on the degree of concentration and the nature of the international competition. In initially competitive industries, increased import competition is associated with higher gender wage gaps and lower female employment. Increased export intensity on the other hand is associated with a lower gender wage gap, but lower female employment. Conversely, opening up to increased international import competition in initially concentrated industries is associated with falling gender wage gaps and rising female employment, while increased exports in these industries is associated with higher female employment as well. These findings have important implications for policy makers attempting to create more equitable labor market conditions in post-revolutionary Egypt. JEL classifications F1, F6, J7, J3

Quality upgrading, competition and trade policy: evidence from the agri-food sector

This paper analyses the extent to which the reduction of import tariffs as a measure of import competition affects the quality upgrading of the food products exported to the European Union (EU). This relationship is studied using a ‘distance to the frontier’ model which is based on a non-monotonic relationship between competition and innovation. Quality is inferred from trade data using an innovative method recently proposed by Khandelwal. The results strongly support the existence of a non-monotonic relationship between competition and quality upgrading, with varieties close to the world frontier being more likely to upgrade quality in response to an increase in import competition. This relationship holds true for both developing and developed countries and is even stronger for countries/products targeted by specific FDI policies. Moreover, there is a strong positive relationship between the diffusion of EU voluntary standard and quality upgrading.

Does Competition from China Raise the Probability of Becoming Unemployed? An Analysis Using Spanish Workers’ Micro-Data

In the period 1997–2011, import competition from China multiplied by five in the Spanish manufacturing sector. In this paper we analyze whether this severe increase in import competition from China is associated with a higher probability of becoming unemployed in the Spanish manufacturing sector. Linking industry-level data on imports with the working histories of 141,000 manufacturing workers, we show that import competition from China is positively associated with the probability of becoming unemployed. In particular, a standard deviation increase in import competition from China raises the probability of becoming unemployed between 0.8 and 3.5 % points, which represents between a 9 % and a 44 % increase relative to the unconditional probability of becoming unemployed. In contrast, we do not find any effect of import competition from China on manufacturing wages. Also, our estimations show that there is weak evidence of a positive association between a higher import competition from China and the probability of switching to an employment outside the manufacturing sector.

The Influences of Foreign Direct Investments, Intrafirm Trading, and Currency Undervaluation on U.S. Firm Trade Disputes

We apply insights from “new, new” trade theory to explain a puzzling decline in U.S. firm antidumping (AD) filings in an era of persistent foreign currency undervaluations and increasing import competition. Firms exhibit heterogeneity both within and across industries regarding foreign direct investment. We propose that firms making vertical, or resource-seeking, investments abroad will be less likely to file AD petitions, and firms are likely to undertake vertical FDI in the context of currency undervaluation. Hence, we argue, the increasing vertical FDI of U.S. firms makes trade disputes far less likely. We use firm level data to examine the universe of U.S. manufacturing firms and find that AD filers generally conduct no intrafirm trade with filed-against countries. We also find that persistent currency undervaluation is associated over time with increased vertical FDI and intrafirm trade by U.S. MNCs in the undervaluing country. Among larger U.S. MNCs, the likelihood of an AD filing is negatively associated with increases in intrafirm trade. In the context of currency undervaluation, we confirm the existing finding that undervaluation is associated with more AD filings. We also find, however, that high levels of intrafirm imports from countries with undervalued currencies significantly decrease the likelihood of AD filings. Our study highlights the centrality of firm heterogeneity in international trade and investment in understanding political mobilization over international economic policy.

Does trade stimulate product quality upgrading?

AbstractThis paper investigates whether increased import competition leads firms to engage in incremental innovation reflected in product quality upgrading using Chilean manufacturing firm‐product data and measuring product quality with unit values (prices). We identify causal effects of import competition using an effective trade barrier measure – transport costs – as instruments for import penetration ratios across industries. Transport costs have a negative and significant effect on product quality. The evidence suggests that estimated unit value increases capture product quality upgrading, imports’ competition effects drive quality upgrading, and benefits depend on firms’ industrial specialization. Easier access to intermediate inputs also fosters quality upgrading.

Response strategies of local firms to import competition in emerging markets

Using a sample of 3808 firms from 1996 to 2007, the impact of three strategic options that can be implemented by local Asian (i.e., Indian) firms facing increased import competition in their domestic market is analyzed. On average, firms with greater investments in intangible resources and tighter product focus do better, while firms with greater international sales perform poorly compared to their peers. However, in industries characterized by high import competition, firms with international operations and product focus tend to have higher performance, while firms with intangible resources perform poorly.

A Trapped-Factors Model of Innovation

We explain a counterintuitive empirical finding: Firms facing more import competition do more innovation. In our model, factors are trapped inside a firm. An increase in import competition encourages a firm to innovate by reducing the opportunity cost of inputs. Without trapped factors, trade liberalization leads to a small permanent increase in the worldwide rate of growth. With trapped factors, firms that face more import competition do relatively more innovation. The extra innovation induced by trapped factors induces a small permanent increase in aggregate output, consumption, and welfare, generalizing the appropriate estimate of the gains from trade.

Import competition and disappearing dividends

Import competition has had an enormous impact on the US economy. This paper looks at whether such competition has increased the risk of US firms and is a factor that can partly explain the Fama–French disappearing dividends phenomenon. We show that firms facing more import competition do face more uncertainty in their future performance, and are less likely to pay a dividend. Import penetration through a risk channel has significant explanatory power, even after we include a variety of controls suggested in the literature, as well as Herfindahl index that controls for market power. Further, we can explain a significant part of the disappearing dividends phenomenon. Finally, we also find evidence that import competition contributes to the substitution of share repurchases for cash dividends. We are the first to document the impact that increased import competition and “globalization” have had on the dividend policy of US firms.

Economic Performance under NAFTA: A Firm-Level Analysis of the Trade-productivity Linkages

Did North American Free Trade Agreement (NAFTA) make Mexican firms more productive? If so, through which channels? This paper addresses these questions by deploying a robust microeconometric approach that disentangles the various channels through which integration with the global markets can affect firm-level productivity. The results show that NAFTA stimulated the productivity of Mexican plants via: (1) increase in import competition and (2) positive effect on access to imported intermediate inputs. Crucially, the impact of trade reforms was not identical for all integrated firms, with fully integrated firms (i.e., firms simultaneously exporting and importing) benefiting more than other integrated firms.

Profitability and capital structure: Evidence from import penetration

Firms experiencing increases in import competition significantly reduce their leverage ratios by issuing equity and selling assets to repay debt. Using import tariffs and foreign exchange rates as instrumental variables for import penetration, I show that these results are not manifestations of endogenous relations between import competition and leverage. The results are consistent with traditional trade-off models of capital structure that predict a positive relation between book leverage and expected future profitability. Further evidence suggests that import competition affects leverage through changes in the trade-off between the tax benefits of debt and the costs of financial distress.