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CEP discussion paper
Opposing firm-level responses to the China shock: horizontal competition versus vertical relationships
Philippe Aghion, Antonin Bergeaud, Matthieu Lequien, Marc J. Melitz and Thomas Zuber August 2021
Paper No' CEPDP1787:
Full Paper (pdf)

Tags: competition shock; patent; firms; import

We decompose the "China shock" into two components that induce different adjustments for firms exposed to Chinese exports: a horizontal shock affecting firms selling goods that compete with similar imported Chinese goods, and a vertical shock affecting firms using inputs similar to the imported Chinese goods. Combining French accounting, customs, and patent information at the firm-level, we show that the horizontal shock is detrimental to firms' sales, employment and innovation. Moreover, this negative impact is concentrated on low-productivity firms. By contrast, we find a positive effect - although often not significant - of the vertical shock on firms' sales, employment and innovation.