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International Trade and Firm-Level Markups when Location and Quality Matter

Author

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

Abstract

In this paper, 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) (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, 2014. "International Trade and Firm-Level Markups when Location and Quality Matter," Working Papers 2014-15, CEPII research center.
  • Handle: RePEc:cii:cepidt:2014-15
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    More about this item

    Keywords

    Mark-ups; International Trade; Productivity;
    All these keywords.

    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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