Plant-Level Adjustments to Imports and Exports at the Extensive Margin

This paper presents an empirical analysis of plant level responses to the China trade shock based upon a DSGE framework with heterogeneous firms and productivity shocks. The empirical analysis shows that soaring imports from China are associated with a higher probability of plant closure. By contrast, firms in export oriented industries are less likely to exit. We rationalize these findings by several counter-factual experiments based upon a DSGE framework. Imports always raise the exit rate but the export-effect is ambiguous. More exports fuel competition among domestic rivals associated with more exits. However, this competition effect disappears when the share of exporters is extremely high. The less intuitive reduction in plant exit due to a higher Chinese demand for German manufacturing goods can be explained by another channel: We interact exports with negative productivity shocks. Firms in industries with higher export-intensity are better prepared against negative productivity shocks due to higher demand from Foreign. The negative effects of Chinese imports on plant exit can be offset by the positive interaction effects