Exit in Globalising Industries: The Role of International Sourcing

Leo Sleuwaegen, Department of Applied Economics, Catholic University Leuven

The paper studies the impact of globalisation on the exit behaviour of domestic and foreign firms in Belgian manufacturing industries. The strongest discipline is found to come from rising import growth and rising multinational firms penetration of the industry which systematically increase the probability of exit of (inefficient) domestic firms. Taking advantage of international fragmentation of production, international (out)sourcing is shown to lower the probability of exit. Controlled for productivity differences across firms, exporting does not lower the probability of exit. Foreign firms are found to be subject to similar disciplinary forces but do not show exit to respond to the same passive learning process as holds for domestic firms.

Date: 30 May 2006