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

Listed author(s):
  • 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)

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.

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File URL: http://www.gredeg.cnrs.fr/working-papers/GREDEG-WP-2014-37.pdf
File Function: First version, 2014
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Paper provided by Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis in its series GREDEG Working Papers with number 2014-37.

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Length: 40 pages
Date of creation: Nov 2014
Publication status: Forthcoming in Journal of Economic Geography
Handle: RePEc:gre:wpaper:2014-37
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