When the Floodgates Open: 'Northern' Firms' Response to Removal of Trade Quotas on Chinese Goods
65 Pages Posted: 29 Jul 2012 Last revised: 10 Jun 2013
Date Written: April 20, 2013
Abstract
Using the dismantling of the Multi-fibre Arrangement quotas on Chinese textile and clothing products in conjunction with China's accession to WTO, within firms adjustments to intensified low-wage competition is analyzed. 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. Competition is found to negatively affect employment, value-added and intangible assets of the Danish firms, and firms are found to refocus their innovative efforts away from goods where China's competitive advantage becomes higher. The results show an important role of the distributional impact of low-wage competition within firms in restructuring the industry and support theories that indicate compositional changes in the scopes and operations of "Northern" firms in response to competition from "South."
Keywords: Textile and Clothing Industry, Multi-fibre Arrangement, China, Denmark, Low-Wage Country Competition, Within Firm Adjustments, Occupation Characteristics, New Product Introduction
JEL Classification: F16, F61, F25
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