What do researchers have to say about the relation between a

What do researchers have to say about the relation between a firm’s productivity and exposure to global competition? Provide 2 real- world examples in which international trade lead to increases in productivity for a firm or industry.

Solution

With fall in trade barriers and transaction costs,new global competitors entering domestic markets.Due to competitive pressure,local companies are forces to to enhance performance by innovating and adopting process and product improvement.This leads to higher productivity of domestic sector.Increases in competition led to
increases in industry productivity. Plants that survived these increases in competition were typically
found to have large productivity gains, and these gains often accounted for the majority of overall
industry gains.

For example:

1.Take US automotive manufacturing sector as a case example. Focused on the production of new vehicles in the US, including parts assembly. We have chosen this example because of the globally competitive nature of the automotive market and the size of the US in this market over our period of analysis. As we shall see,
some of the non-US original equipment manufacturers (OEMs) had clear productivity advantages which enabled them to create significant competitive .Productivity increases due to this pressure.

2.) When Belgium Liberalized Textiles:
When a country liberalizes its trade regime by reducing tariffs on imports, this clearly increases competitive pressure on domestic firms, as in the model above if tariffs are reduced. De Loecker (2009) studies the impact on productivity on Belgian textile manufacturing of reductions in import quotas on textile products. He finds that industry productivity increases following the liberalization.