Chinese competition and the manufacturing sector : evidence for chilean plants

Abstract

During the last decades, China’s exports have enormously increased and nowadays is one of the largest exporting economies in the world. This phenomenon has had an important effect on the Chilean economy, since Chinese imports increased from being less than 1% of the total imports in the country in 1980 to 20% in 2010. Using information about Chilean manufacturing plants from 1995 until 2006, we attempt to measure the impact that Chinese competition over the manufacturing sector. In order to do this, we have focused our attention on 3 key variables: productivity, employment and firm survival. For this purpose, we have elaborated an import penetration index for 80 manufacturing industries, and we instrument the Chinese competition with the Chinese import share in other American countries. The results obtained from this are just conclusive: Chinese competition has had a negative impact on employment and survival probability of Chilean plants. However, we do not find any significant effect of import competition on productivity growth. It seems to be that, in contrast to developed economies, manufacturing plants in less develop countries are not capable of making the most of trade gains, and produce rises of productivity