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Product Mix and Firm Productivity Responses to Trade Competition

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  • Mayer, Thierry
  • Melitz, Marc J
  • Ottaviano, Gianmarco

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

  • Mayer, Thierry & Melitz, Marc J & Ottaviano, Gianmarco, 2016. "Product Mix and Firm Productivity Responses to Trade Competition," CEPR Discussion Papers 11389, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:11389
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    JEL classification:

    • F1 - International Economics - - Trade

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