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Effect of Foreign Affiliates on Exporting and Markups

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  • ZHANG Hongyong
  • ZHU Lianming

Abstract

In this paper, we empirically investigate the effect of foreign affiliates on the relationship between exports and markups of Chinese firms. After recovering quantity-based firm markups by correcting for both output and input price biases, we find evidence that exporters charge higher markups than non-exporters, and this effect is substantially less pronounced for foreign affiliates. We further decompose markups into a price and cost effect and find that the cost effect accounts for the lower markups of foreign-owned exporters. Our results suggest that foreign-owned exporters have a price premium but higher marginal costs on average.

Suggested Citation

  • ZHANG Hongyong & ZHU Lianming, 2015. "Effect of Foreign Affiliates on Exporting and Markups," Discussion papers 15127, Research Institute of Economy, Trade and Industry (RIETI).
  • Handle: RePEc:eti:dpaper:15127
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