International trade, exit and entry: A cross-country and industry analysis

This paper examines the impact of globalisation, by means of growing international trade, on firm entry and exit at the industry level. The analysis is carried on the manufacturing industries of eight European countries, over the period 1997-2003. Our main findings suggest important entry-discouraging effects in the short run, following increased trade exposure. Using panel estimation techniques, the empirical evidence points to less creative replacement entry in industries characterised by substantial import intensity, and strong selection and higher entry barriers in industries characterised by higher openness through the export channel. The negative effects of trade openness are milder if the increasing trade exposure concerns intra-industry trade, coupled mainly with international sourcing of intermediates within the industry. The latter effects also show up in the model explaining the exit of firms, which we estimate jointly with entry.