The Effects of International Product Market Competition and Demand on Firm Productivity and Labor Market Power
THE RAPID AND ONGOING PROCESS OF GLOBALIZATION creates profound challenges for firms operating in the market economy. Global integration has increased the size of firms’ product markets and the amount of their competitors, while global production networks and dramatically falling transportation costs redefine the nature of firms’ production activities. Firms that cannot adapt to this new environment decay and are forced to exit the market, whereas firms that successfully cope with those processes of internationalization prosper and capture markets shares from declining and less productive firms (Pavcnik (2002); Melitz (2003); Melitz & Trefler (2012)).
