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When Pareto meets Melitz: the inapplicability of the Melitz-Pareto model for Chinese firms

Author

Listed:
  • Sun, Churen
  • Tian, Guoqiang
  • Zhang, Tao

Abstract

This paper realizes the Melitz-Pareto model using firm-level data from 40 Chinese manufacturing industries from 1998 and 2007. Under the hypothesis that the productivity of firms in each industry follows a Pareto distribution, we show that the domestic sales of non-exporters and the foreign sales of exporters in each industry also follow a Pareto distribution, respectively. We then estimate industrial productivity Pareto distributions, and cut-offs of domestic sales of non-exporters and foreign sales of exporters for each industry. Together this yields all the parameters of the Melitz-Pareto model. Our result shows that the Melitz-Pareto model may not fully apply to Chinese firms.

Suggested Citation

  • Sun, Churen & Tian, Guoqiang & Zhang, Tao, 2011. "When Pareto meets Melitz: the inapplicability of the Melitz-Pareto model for Chinese firms," MPRA Paper 35597, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:35597
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    File URL: https://mpra.ub.uni-muenchen.de/49000/2/MPRA_paper_35597.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Churen Sun & Guoqiang Tian & Tao Zhang, 2013. "Special Issue. Guest Editor: Zhihao Yu," Review of Development Economics, Wiley Blackwell, vol. 17(3), pages 494-509, August.
    2. Bawa, Siraj, 2017. "Corporate Taxation in the Open Economy without Pareto," MPRA Paper 80857, University Library of Munich, Germany, revised Aug 2017.
    3. Dutt, Pushan & Mihov, Ilian & Van Zandt, Timothy, 2013. "The effect of WTO on the extensive and the intensive margins of trade," Journal of International Economics, Elsevier, vol. 91(2), pages 204-219.
    4. Ma, Shuang & Sun, Churen & Tian, Guoqiang, 2011. "Minimum wage and export: evidence from Chinese firm-level data," MPRA Paper 35098, University Library of Munich, Germany.

    More about this item

    Keywords

    Melitz-Pareto model; Pareto distribution; productivity heterogeneity; export;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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