Import Competition in Services: Firm Survival, Firm Growth and Implied Changes in Employment

20  March 2017    3:00 pm CET

Yvonne Wolfmayr, Austrian Institute of Economic Research (WIFO)

In cooperation with:


wiiw, Rahlgasse 3, 1060 Vienna


The presentation is based on a paper co-authored with Elisabeth Christen (WIFO) and Michael Pfaffermayr (WIFO, University of Innsbruck)

Focusing on services firms and services trade in Austria, this paper provides new insights into the firm level employment effects of import competition at the industry level and its interactions with firm heterogeneity in productivity and size. We use firm level data from the Austrian Social Security database (ASSD) and apply a two part model that permits an integrated treatment of firm exit and firm growth and the resulting net changes in employment within a specific service sector. The results imply that higher levels of international competition increase the probability of firm exit and decrease employment growth in surviving firms with the impact inversely related to firm productivity and firm size as predicted by theory. In addition, we find that the geographical source of import competition is important, as the impact of trade on job creation are highest when trading partners are Central and Eastern European countries. Furthermore, the results imply that employment changes due to firm exits contribute an important part to the overall trade-induced change in employment and emphasize the importance to integrate the impact of firm exits into the analysis of employment impacts of trade.

Keywords: Firm dynamics, Job creation, DHS growth rate, Import competition, Services

JEL classification: D22, F16, J23, L25, L80