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International trade and firm-level markups when location and quality matter

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Listed:
  • Flora Bellone
  • Patrick Musso
  • Lionel Nesta
  • Frederic Warzynski

Abstract

In this article, we estimate firm-level markups and test some micro-level predictions of a model of international trade with heterogeneous firms and endogenous markups. Our theoretical framework is an extended version of the Melitz and Ottaviano (2008, Review of Economic Studies 75, 295–316) (MO) model that features both quality and spatial differentiation across firms. In line with our model, we find that firm markups are positively related to firm productivity and negatively related to the toughness of local competition. Considering the relationship between firm markups and exports, we find evidence that markups are higher for exporters, what appears to indicate that the quality-enhancing channel overbalances the price-depressing channel of global competition.

Suggested Citation

  • Flora Bellone & Patrick Musso & Lionel Nesta & Frederic Warzynski, 2016. "International trade and firm-level markups when location and quality matter," Journal of Economic Geography, Oxford University Press, vol. 16(1), pages 67-91.
  • Handle: RePEc:oup:jecgeo:v:16:y:2016:i:1:p:67-91.
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    File URL: http://hdl.handle.net/10.1093/jeg/lbu045
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    References listed on IDEAS

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    Cited by:

    1. Sarah Guillou & Lionel Nesta, 2015. "Markup heterogeneity, export status ans the establishment of the euro," Sciences Po publications 2015-01, Sciences Po.
    2. Mauro Caselli & Stefano Schiavo & Lionel Nesta, 2017. "Markups and markdowns," Documents de Travail de l'OFCE 2017-11, Observatoire Francais des Conjonctures Economiques (OFCE).
    3. Chen, Natalie & Juvenal, Luciana, 2016. "Quality, trade, and exchange rate pass-through," Journal of International Economics, Elsevier, vol. 100(C), pages 61-80.
    4. Osharin Alexander & Verbus Valery, 2015. "Heterogeneous consumers and market structure in a monopolistically competitive setting," EERC Working Paper Series 15/03e, EERC Research Network, Russia and CIS.
    5. repec:eee:jcecon:v:45:y:2017:i:3:p:445-455 is not listed on IDEAS

    More about this item

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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