Import Competition, Domestic Regulation and Firm-Level Productivity Growth in the OECD

This paper examines how import penetration affects firms' productivity growth taking into account the heterogeneity in firms' distance to the efficiency frontier and country differences in product market regulation. Using firm-level data for a substantial number of OECD countries from the late 1990s to late 2000s, the analysis reveals non-linear effects of both sectoral import penetration and de jure product market regulation measures depending on firms' positions along the global distribution of productivity levels. A magnifying effect is found between import penetration and domestic barriers to entry, conditional on a firm's distance to the technological frontier. The heterogeneous effects of international competition and domestic product market regulation on firm-level productivity growth are consistent with a neo-Schumpeterian view of trade and regulation. Close to the technology frontier, import competition has a strongly positive effect on firm-level productivity growth, with stringent domestic regulation reducing this effect substantially. However, far from the frontier, neither import competition nor its interaction with domestic regulation has a statistically significant effect on firm-level productivity growth. The results also suggest that insuficient attention has been made in the trade literature to within-firm productivity growthh.

Ben Yahmed, Sarra and Sean Dougherty (2013), Import Competition, Domestic Regulation and Firm-Level Productivity Growth in the OECD, G-Mond Working Papers, Paris School of Economics