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

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  • Wp 08-20

    Final published version, 408 KB, PDF document

  • Flora Bellone, Centre National de la Recherche Scientifique, France
  • Patrick Musso, Centre National de la Recherche Scientifique, France
  • Lionel Nesta, Centre National de la Recherche Scientifique, France
  • Frederic Warzynski

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.

Original languageEnglish
Place of publicationAarhus
PublisherAarhus School of Business, Aarhus University, Department of Economics
Number of pages48
ISBN (Print)9788778823779
ISBN (Electronic)9788778823786
Publication statusPublished - 2008

    Research areas

  • Endogenous markups, Export behavior, Productivity, Firm-level

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