The Impact of Import Competition from China on Firm Performance in the Peruvian Manufacturing Sector

Abstract

This paper studies the impact that import competition from China had on firms performance in the manufacturing sector in Peru in 20052015. Using a firm-level dataset that covers the universe of firms in the formal sector, our results reveal that Peruvian firms reacted to increased competition from Chinese manufacturing goods mainly by altering their factor choices. Smaller firms seem to have opted for reducing their demand for laborfollowing a cost-reduction approach after facing lower saleswhile larger firms seem to have adapted by deepening their capital requirements. We also observe a negative cumulative impact on net sales when we account for longer timeframes. Looking at import competition from China in third markets, we find that increased competition in the Peruvian exporting firms main export markets had a negative effect on employment growth in 20052010.