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The authors use a new dataset containing detailed information about the production structure of a large and representative sample of French manufacturing firms to investigate whether aggregate reallocations of production are (at least partly) driven by within-firm product portfolio strategies. Using instrumental variable techniques, they obtain that firms experiencing a high low-cost country competitive pressure are significantly more diversified, whereas firms exposed to northern competition rather choose to re-focus their product portfolios. More productive firms combine more often these productive reallocations with genuine innovative activities. Furthermore, the correlation between diversification and southern competition is non-linear, thus suggesting that this diversification strategy is transitory.
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