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Margin rate and the cycle: the role of trade openness

Author

Listed:
  • Gilbert Cette

    (Centre de recherche de la Banque de France - Banque de France, AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

  • Rémy Lecat

    (Centre de recherche de la Banque de France - Banque de France)

  • Ahmed Ould Ahmed Jiddou

    (Centre de recherche de la Banque de France - Banque de France)

Abstract

Using three datasets of French manufacturing firms, this article studies the role of trade openness, in relation with the cycle, as a determinant of company margin rate. Margin rates increase as capacity utilization tightens (and vice versa), reflecting the procyclicality of margin rates. However, high import rates are limiting this procyclicality: when capacities are tight, domestic producers may not be able to serve demand, but foreign producers may substitute for them if they are already present on the market as reflected by the level of import rates.

Suggested Citation

  • Gilbert Cette & Rémy Lecat & Ahmed Ould Ahmed Jiddou, 2016. "Margin rate and the cycle: the role of trade openness," Post-Print hal-03563434, HAL.
    • Handle: RePEc:hal:journl:hal-03563434
    DOI: 10.1080/00036846.2016.1142655
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    References listed on IDEAS

    as
    1. Marzio Galeotti & Fabio Schiantarelli, 1998. "The Cyclicality of Markups in a Model with Adjustment Costs: Econometric Evidence for US Industry," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 60(2), pages 121-142, May.
    2. Cette Gilbert & Lecat Rémy & Ahmed Jiddou Ahmed Ould, 2016. "How do firms adjust production factors to the cycle?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 16(2), pages 361-394, June.
    3. Haskel, Jonathan & Martin, Christopher, 1994. "Capacity and Competition: Empirical Evidence on UK Panel Data," Journal of Industrial Economics, Wiley Blackwell, vol. 42(1), pages 23-44, March.
    4. Karl Aiginger & Christoph R. Weiss, 1998. "title{Does it Pay to be Flexible?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 13(5), pages 543-556, October.
    5. Winston Ricardo Moore, 2010. "Capital account liberalization and commercial bank interest rate margins," Applied Financial Economics, Taylor & Francis Journals, vol. 20(21), pages 1673-1685.
    6. Conyon, M & Machin, Stephen, 1991. "The Determination of Profit Margins in UK Manufacturing," Journal of Industrial Economics, Wiley Blackwell, vol. 39(4), pages 569-582, June.
    7. Marcos Lima & Marcelo Resende, 2004. "Profit margins and business cycles in the Brazilian industry: a panel data study," Applied Economics, Taylor & Francis Journals, vol. 36(9), pages 923-930.
    8. Emanuel Barnea & Moshe Kim, 2007. "Interest rate margins: a decomposition of dynamic oligopolistic conduct and market fundamentals," Applied Financial Economics, Taylor & Francis Journals, vol. 17(6), pages 487-499.
    9. Joaquim Oliveira Martins & Stefano Scarpetta, 2003. "Estimation of the Cyclical Behaviour of Mark-ups: A Technical Note," OECD Economic Studies, OECD Publishing, vol. 2002(1), pages 173-188.
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    Cited by:

    1. Gilbert Cette & Sandra Nevoux & Loriane Py, 2022. "The impact of ICTs and digitalization on productivity and labor share: evidence from French firms," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 31(8), pages 669-692, November.

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    More about this item

    Keywords

    Margin rates; capacity utilization; cycle; trade openness;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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