Macroeconomics Seminar - Scott French (UNSW)

Title: Foreign Competition and Productivity: The Effect of China on Mexican Firms 

Abstract: We investigate the effect of the rise of Chinese exports on the productivity of Mexican plants between 1994 and 2007 using detailed panel data on Mexican manufacturers matched with trade data at the product level. Using quantity-based estimates plant-level productivity, which do not depend on assumptions regarding demand or market structure, we identify the effect of increased foreign competition using variation in the increase of Chinese exports across products to Mexico and the United States, instrumented by the increase Chinese exports to other countries. We find robust evidence of a heterogeneous effect, with foreign competition causing initially low-productivity plants to fall farther behind their peers. We investigate several possible channels and find support for the within-plant composition of output as an intermediate mechanism. While initially high-productivity plants experience a high degree of product churning in response to competition -- dropping lower-performing products, concentrating production in their core products, and introducing new products -- their low-productivity peers maintain the status quo.