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Product Mix and Firm Productivity Responses to Trade Competition

Author

Listed:
  • Thierry Mayer

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

  • Marc Melitz

    (Department of Economics, Harvard University - Harvard University)

  • Gianmarco Ottaviano

    (UNIBO - Alma Mater Studiorum Università di Bologna = University of Bologna)

Abstract

We document how demand shocks in export markets lead French multi-product exporters to reallocate 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 multiproduct 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," SciencePo Working papers Main hal-03393193, HAL.
  • Handle: RePEc:hal:spmain:hal-03393193
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03393193
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    References listed on IDEAS

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    More about this item

    Keywords

    Trade competition; French Firms; Export markets; Productivity fluctuations;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade

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