Business Groups and Competition
Business groups can be both paragons and parasites. We explore this dichotomy by studying the impact of China’s access to the WTO both in terms of firms’ incentives to join groups and also in their response to the shock. Using the universe of manufacturing firms in Germany, France and Italy we find that financially constrained and non-innovative firms are more likely to join after the shock. We also find that group affiliates increase patents, citations and patents’ quality in response to the shock. The evidence suggests that groups have much more of paragons that of parasites in this context.