TY - JOUR A1 - Iacovone, Leonardo A1 - Javorcik, Beata A1 - Keller, Wolfgang A1 - Tybout, James T1 - Supplier responses to Walmart's invasion in Mexico JF - Journal of International Economics N2 - This paper examines the effect of Walmart's entry into Mexico on Mexican manufacturers of consumer goods. Guided by firm interviews that suggested substantial heterogeneity across firms in how they responded to Walmart's entry, we develop a dynamic industry model in which firms decide whether to sell their products through Walmex (short for Walmart de Mexico), or use traditional retailers. Walmex provides access to a larger market, but it puts continuous pressure on its suppliers to improve their product's appeal, and it forces them to accept relatively low prices relative to product appeal. Simulations of the model show that the arrival of Walmex separates potential suppliers into two groups. Those with relatively high-appeal products choose Walmex as their retailer, whereas those with lower appeal products do not. For the industry as a whole, the model predicts that the associated market share reallocations, adjustments in innovative effort, and exit patterns increase productivity and the rate of innovation. These predictions accord well with the results from our firm interviews. The model's predictions are also supported by establishment-level panel data that characterize Mexican producers' domestic sales, investments, and productivity gains in states with differing levels of Walmex presence during the years 1994 to 2002. Y1 - 2015 U6 - https://doi.org/10.1016/j.jinteco.2014.08.003 VL - 95 IS - 1 SP - 1 EP - 15 ER - TY - RPRT A1 - Iacovone, Leonardo A1 - Keller, Wolfgang A1 - Rauch, Ferdinand T1 - Innovation responses to import competition N2 - How does trade liberalization that raises a country’s import competition affect the innovative activity of its firms? We exploit the strong growth of Chinese exports resulting from China’s entry into the World Trade Organization in 2001 as a competitive shock to, specifically, Mexican manufacturing firms. Innovation is captured through information on the adoption of detailed firm level production techniques such as just in time inventory methods, quality control measures, and job rotation among the Mexican firms. Our results indicate that China’s rise in global trade did not affect by much Mexico’s rate of innovation, which contrasts with the substantial gains that others have found in the case of bilateral iberalizations. At the same time, there is a striking heterogeneity in the responses across firms for different productivities, with productive firms innovating more and less productive firms innovating less, which leads to positive selection in that initial differences in firm performance are sharpened by the advent of new competition. We discuss the implications of these findings for theories of trade and innovation. Y1 - 2011 UR - https://pdfs.semanticscholar.org/55d4/4ed62dbefe54fd318ce1b4035d9dbff45ddc.pdf ER - TY - RPRT A1 - Iacovone, Leonardo A1 - Keller, Wolfgang A1 - Rauch, Ferdinand T1 - Innovation When The Market Is Shrinking: Firm-level Responses To Competition From China N2 - How does trade liberalization that raises a country’s import competition affect the innovative activity of its firms? We exploit the strong growth of Chinese exports resulting from China’s entry into the World Trade Organization in 2001 as a competitive shock to, specifically, Mexican manufacturing firms. Innovation is captured through information on the adoption of specific production techniques such as just in time inventory methods, quality control, and job rotation. Our results indicate that China’s rise in global trade did not affect by much Mexico’s rate of innovation, which contrasts with the substantial gains that others have found in the case of bilateral liberalization. At the same time, there is a striking heterogeneity in the responses across firms: productive firms innovate more while less productive firms innovate less. This leads to positive selection in that initial differences in firm performance are sharpened by the advent of new competition. We discuss the implications of these findings for theories of trade and innovation. Y1 - 2010 ER -