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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

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    More about this item

    Keywords

    Multiproduct Firms; Productivity; Trade;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade

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