Trade as an engine of creative destruction: Mexican experience with Chinese competition

This paper exploits the surge in Chinese exports from 1994 to 2004 as a natural experiment toevaluate the effects of a unilateral low wage trade and competition shock to producers in Mexico. Wefind that this shock causes selection at both firm and product levels as its impact is highlyheterogeneous both on the intensive and extensive margins. Sales of smaller plants and more marginalproducts are compressed and are more likely to cease, while larger plants and products exhibit anopposite response. Similar results hold both for the domestic market and for competition facingMexican exporters in a third market (i.e. the United States).