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Product Mix and Firm Productivity Responses to Trade Competition

Author

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  • Thierry Mayer

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique, CEPR - Center for Economic Policy Research - CEPR)

  • Marc Melitz

    (Department of Economics, Harvard University - Harvard University, NBER - National Bureau of Economic Research [New York] - NBER - The National Bureau of Economic Research, CEPR - Center for Economic Policy Research - CEPR)

  • Gianmarco Ottaviano

    (Bocconi University [Milan, Italy], CEP - LSE - Centre for Economic Performance - LSE - London School of Economics and Political Science, CEPR - Center for Economic Policy Research - CEPR)

Abstract

We document how demand shocks in export markets lead French multiproduct exporters to reallocate the mix of products sold in those destinations. In response to positive demand shocks, French firms skew their export sales toward their best-performing products. We develop a theoretical model of multiproduct firms and derive the specific demand conditions (with endogenous price elasticities) needed to generate these product-mix reallocations. Under those demand conditions, the increased competition from demand shocks in export markets also induces productivity changes within the firm. We empirically test for this connection between demand shocks and the productivity of multiproduct firms. We find that this connection is economically substantial.

Suggested Citation

  • Thierry Mayer & Marc Melitz & Gianmarco Ottaviano, 2021. "Product Mix and Firm Productivity Responses to Trade Competition," SciencePo Working papers Main hal-03796148, HAL.
  • Handle: RePEc:hal:spmain:hal-03796148
    DOI: 10.1162/rest_a_00952
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03796148
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    JEL classification:

    • F1 - International Economics - - Trade

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