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Endogenous Markups, Firm Productivity and International Trade: : Testing SomeMicro-Level Implications of theMelitz-Ottaviano Model

Author

Listed:
  • Bellone, Flora

    (GREDEG-CNRS)

  • Musso, Patrick

    (GREDEG-CNRS)

  • Nesta, Lionel

    (GREDEG-CNRS)

  • Warzynski, Frederic

    () (Department of Economics, Aarhus School of Business)

Abstract

In this paper, we test key micro-level theoretical predictions ofMelitz and Ottaviano (MO) (2008), a model of international trade with heterogenous firms and endogenous mark-ups. At the firm-level, the MO model predicts that: 1) firm markups are negatively related to domestic market size; 2) markups are positively related to firm productivity; 3) markups are negatively related to import penetration; 4) markups are positively related to firm export intensity and markups are higher on the export market than on the domestic ones in the presence of trade barriers and/or if competitors on the export market are less efficient than competitors on the domestic market. We estimate micro-level price cost margins (PCMs) using firm-level data extending the techniques developed by Hall (1986, 1988) and extended by Domowitz et al. (1988) and Roeger (1995) for the French manufacturing industry from 1986 to 2004. We find evidence in favor of these theoretical predictions.

Suggested Citation

  • Bellone, Flora & Musso, Patrick & Nesta, Lionel & Warzynski, Frederic, 2008. "Endogenous Markups, Firm Productivity and International Trade: : Testing SomeMicro-Level Implications of theMelitz-Ottaviano Model," Working Papers 08-20, University of Aarhus, Aarhus School of Business, Department of Economics.
  • Handle: RePEc:hhs:aareco:2008_020
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    Cited by:

    1. Flora Bellone & Patrick Musso & Lionel Nesta & Frédéric Warzynski, 2009. "L'effet pro-concurrentiel de l'intégration européenne. Une analyse de l'évolution des taux de marge dans les industries manufacturières françaises," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(1), pages 139-163.
    2. Michele Imbruno, 2008. "EXPORTING, PRODUCTIVITY AND MARKET INTEGRATON: Italian manufacturing firms within the European context," Quaderni DSEMS 22-2008, Dipartimento di Scienze Economiche, Matematiche e Statistiche, Universita' di Foggia.
    3. KATO Atsuyuki & KODAMA Naomi, 2011. "Markups, Productivity, and External Market Development: An empirical analysis using SME data in the service industry," Discussion papers 11057, Research Institute of Economy, Trade and Industry (RIETI).
    4. Yong-Seok Choi & Siwook Lee, 2013. "Productivity, Markups and Export Intensity: Evidence from Korean Manufacturing," Korean Economic Review, Korean Economic Association, vol. 29, pages 329-350.

    More about this item

    Keywords

    Endogenous markups; Export behavior; Productivity; Firm-level;

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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