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

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

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.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 35597.

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Date of creation: 31 Oct 2011
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Handle: RePEc:pra:mprapa:35597
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