Product Market Competition and the Relocation of Economic Activity: Evidence from the Supply Chain

72 Pages Posted: 28 Jul 2020 Last revised: 16 Aug 2020

See all articles by Chen Chen

Chen Chen

Monash University - Department of Accounting

Sudipto Dasgupta

Chinese University of Hong Kong, ABFER, CEPR, and ECGI

Thanh Huynh

Monash University - Department of Banking and Finance

Ying Xia

Monash University - Monash Business School

Multiple version iconThere are 2 versions of this paper

Date Written: July 2020

Abstract

We show that increasing competition changes the location of economic activity and, in turn, affects supply chain relationships. Using establishment-level data, we find that when upstream product markets become more competitive, suppliers are more likely to relocate their establishments closer to customers. Following the supplier's relocation, its sales to the customer increase, its relationship with the customer is less likely to be terminated, and its innovation is more aligned with the customer's innovation. However, the improved relationship, by causing the supplier to engage more in innovation dedicated to the customer, adversely affects creative innovation, which is known to drive growth.

Keywords: establishment relocation, knowledge spillover, Product Market Competition, Supply Chain

JEL Classification: G30, L1, O3

Suggested Citation

Chen, Chen and Dasgupta, Sudipto and Huynh, Thanh D. and Xia, Ying, Product Market Competition and the Relocation of Economic Activity: Evidence from the Supply Chain (July 2020). CEPR Discussion Paper No. DP15056, Available at SSRN: https://ssrn.com/abstract=3661399

Chen Chen (Contact Author)

Monash University - Department of Accounting ( email )

Building H, Level 3
Caulfield campus
Melbourne, Victoria 3800
Australia

Sudipto Dasgupta

Chinese University of Hong Kong, ABFER, CEPR, and ECGI ( email )

CUHK, Cheng Yu Tung Building, Room 1224
Shatin, NT
Hong Kong
Hong Kong

Thanh D. Huynh

Monash University - Department of Banking and Finance ( email )

Melbourne
Australia

Ying Xia

Monash University - Monash Business School ( email )

900 Dandenong Road
Caulfield Campus
Melbourne, Victoria 3145
Australia

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