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

Author

Listed:
  • Flora Bellone

    (University of Nice Sophia Antipolis
    GREDEG CNRS)

  • Patrick Musso

    (University of Nice Sophia Antipolis
    GREDEG CNRS)

  • Lionel Nesta

    (OFCE Sciences Po.)

  • Frederic Warzynski

    (Aarhus University)

Abstract

In this paper, we estimate firm-level markups and test some micro-level predictions of a model of international trade with heterogenous firms and endogenous mark-ups. Our theoretical framework is an extended version of the Melitz and Ottaviano (2008) (MO) model which 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 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," GREDEG Working Papers 2014-37, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
    • Handle: RePEc:gre:wpaper:2014-37
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    References listed on IDEAS

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    Cited by:

    1. repec:kap:jincot:v:18:y:2018:i:2:d:10.1007_s10842-017-0260-5 is not listed on IDEAS
    2. Sarah Guillou & Lionel Nesta, 2015. "Markup heterogeneity, export status ans the establishment of the euro," Sciences Po publications 2015-01, Sciences Po.
    3. Stefano Schiavo & Lionel Nesta, 2017. "International Competition and Rent Sharing in French Manufacturing," DEM Working Papers 2017/07, Department of Economics and Management.
    4. Irlacher, Michael & Unger, Florian, 2018. "Effective tax rates, endogenous mark-ups and heterogeneous firms," Discussion Papers in Economics 49717, University of Munich, Department of Economics.
    5. Mauro Caselli & Stefano Schiavo & Lionel Nesta, 2017. "Markups and markdowns," Documents de Travail de l'OFCE 2017-11, Observatoire Francais des Conjonctures Economiques (OFCE).
    6. Sabien Dobbelaere & Kozo Kiyota, 2017. "Labor market imperfections, markups and productivity in multinationals and exporters," Tinbergen Institute Discussion Papers 17-113/V, Tinbergen Institute.
    7. Chen, Natalie & Juvenal, Luciana, 2016. "Quality, trade, and exchange rate pass-through," Journal of International Economics, Elsevier, vol. 100(C), pages 61-80.
    8. Osharin Alexander & Verbus Valery, 2015. "Heterogeneous consumers and market structure in a monopolistically competitive setting," EERC Working Paper Series 15/03e, EERC Research Network, Russia and CIS.
    9. repec:eee:jcecon:v:45:y:2017:i:3:p:445-455 is not listed on IDEAS

    More about this item

    Keywords

    Markups; Productivity; Exports; Firm-level data; France;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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