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Product Mix and Firm Productivity Responses to Trade Competition

Author

Listed:
  • Thierry Mayer
  • Marc Melitz
  • Gianmarco Ottaviano

Abstract

We document how demand shocks in export markets lead French multi-product exporters to re-allocate the mix of products sold in those destinations. In response to positive demand shocks, those French firms skew their export sales towards their best performing products; and also extend the range of products sold to that market. We develop a theoretical model of multi-product firms and derive the specific demand and cost conditions needed to generate these product-mix reallocations. Our theoretical model highlights how the increased competition from demand shocks in export markets-and the induced product mix reallocations-induce productivity changes within the firm. We then empirically test for this connection between the demand shocks and the productivity of multi-product firms exporting to those destinations. We find that the effect of those demand shocks on productivity are substantial-and explain an important share of aggregate productivity fluctuations for French manufacturing.

Suggested Citation

  • Thierry Mayer & Marc Melitz & Gianmarco Ottaviano, 2016. "Product Mix and Firm Productivity Responses to Trade Competition," Working Papers 2016-17, CEPII research center.
  • Handle: RePEc:cii:cepidt:2016-17
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    References listed on IDEAS

    as
    1. Andrew B. Bernard & Andreas Moxnes & Karen Helene Ulltveit-Moe, 2018. "Two-Sided Heterogeneity and Trade," The Review of Economics and Statistics, MIT Press, vol. 100(3), pages 424-439, July.
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    3. Arpita Chatterjee & Rafael Dix-Carneiro & Jade Vichyanond, 2013. "Multi-product Firms and Exchange Rate Fluctuations," American Economic Journal: Economic Policy, American Economic Association, vol. 5(2), pages 77-110, May.
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    5. Alla Lileeva & Daniel Trefler, 2010. "Improved Access to Foreign Markets Raises Plant-level Productivity…For Some Plants," The Quarterly Journal of Economics, Oxford University Press, vol. 125(3), pages 1051-1099.
    6. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2012. "The Empirics of Firm Heterogeneity and International Trade," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 283-313, July.
    7. Nicolas Berman & Philippe Martin & Thierry Mayer, 2012. "How do Different Exporters React to Exchange Rate Changes?," The Quarterly Journal of Economics, Oxford University Press, vol. 127(1), pages 437-492.
    8. Anthony B. Atkinson & Andrea Brandolini, 2010. "On Analyzing the World Distribution of Income," World Bank Economic Review, World Bank Group, vol. 24(1), pages 1-37, January.
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    10. Li, Hongbin & Ma, Hong & Xu, Yuan, 2015. "How do exchange rate movements affect Chinese exports? — A firm-level investigation," Journal of International Economics, Elsevier, vol. 97(1), pages 148-161.
    11. Harrison, Ann E., 1994. "Productivity, imperfect competition and trade reform : Theory and evidence," Journal of International Economics, Elsevier, vol. 36(1-2), pages 53-73, February.
    12. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762.
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    More about this item

    Keywords

    Multiproduct Firms; Productivity; Trade;

    JEL classification:

    • F1 - International Economics - - Trade

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