UBC Theses and Dissertations

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UBC Theses and Dissertations

International trade and firm performance Wang, Ruoying


This dissertation is a collection of three essays that study the effect of opening to trade, especially opening to the import market, on firm performance. The first essay (Chapter 2) explores the link between innovation and import competition in China, a country that during the period we study (2000-2007) saw both a rapid increase in patenting and a lowering of import barriers due to accession to the WTO. Combining manufacturing firm survey data with customs and patent data, we find that import competition encouraged innovation, but only for the most productive firms. These top firms saw an increase in patenting rate of 3.6% for every percentage point drop in import tariffs. The result is quantitatively similar whether we use a sector-wide tariff on output or a weighted tariff at the firm level as a measure of import competition. Consistent with the main finding, top firms also feature increased R&D expenditures and an increase in domestic sales following import liberalization. To analyze the mechanism and welfare implications underlying our empirical findings about China, the second essay (Chapter 3 and 4) builds a model. Firms engage in monopolistic competition across varieties and neck-and-neck competition within each variety. An increase in the neck-and-neck competition reduces the expected profit of not innovating, thus encouraging firms to innovate more to escape the competition. We analyze the efficiency and utility implications using a simple version of the model in Chapter 4. The third essay (Chapter 5) examines the relationship between Canadian manufacturing firms' import behavior and their performance. The focus is on two aspects of import structure, input variety and the dynamics of import relationships. Firms importing more products from a larger set of suppliers tend to be larger, more productive, and more successful in export markets. Not only the number, but also the duration of supply relationships matters. Firms maintaining a higher share of continuous supply relationships also benefit in size and productivity. These results suggest that the breadth and depth of the import network are relevant factors for the performance of Canadian manufacturers.

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