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Globalization and the fall of markups

Author

Listed:
  • Michał Gradzewicz

    (Narodowy Bank Polski)

  • Jakub Mućk

    (Narodowy Bank Polski)

Abstract

This paper provides the evidence of a fall of markups of price over marginal costs in Poland over the last 15 years. Markups were calculated using a census of firms and the methodology proposed by De Loecker and Warzynski (2012). The fall of markups, by 18.6% for median and by 13.1% for weighted mean and experienced by 70% of firms, is robust to several empirical identification strategies. Moreover, the decline of markups is not related to changes in a sectoral composition and firms demography and is most severe in exporting firms. Our empirical results relate the fall of markups to globalization and emergence of the Global Value Chains. We show that the increasing reliance on imported components in production, together with rising concentration of domestic firms on export markets are the main factors behind the observed compression of markups. We also document a hump-shaped (U-shaped) relationship between foreign value added in exports (distance from final demand) and markups.

Suggested Citation

  • Michał Gradzewicz & Jakub Mućk, 2019. "Globalization and the fall of markups," NBP Working Papers 304, Narodowy Bank Polski, Economic Research Department.
  • Handle: RePEc:nbp:nbpmis:304
    Note: The views expressed herein belong to the author and have not been endorsed by Narodowy Bank Polski. We would like to thank Jan Hagemejer, Marcin Kolasa and Joanna Tyrowicz; and seminar participants at Narodowy Bank Polski for helpful comments and discussions. Jakub Mućk thanks for financial support from the Foundation for Polish Science within the START fellowship.
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    More about this item

    Keywords

    markup; globalization; GVC; competition;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • F61 - International Economics - - Economic Impacts of Globalization - - - Microeconomic Impacts
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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