Product Mix and Firm Productivity Responses to Trade Competition

53 Pages Posted: 28 Nov 2016 Last revised: 11 Jan 2018

See all articles by Thierry Mayer

Thierry Mayer

Sciences Po

Marc J. Melitz

Harvard University - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Gianmarco I.P. Ottaviano

Bocconi University - Department of Economics and Paolo Baffi Centre on Central Banking and Financial Regulation

Multiple version iconThere are 3 versions of this paper

Date Written: November 24, 2016

Abstract

We document how demand shocks in export markets lead French multi-product exporters to re-allocate the mix of products sold in those destinations. In response to positive demand shocks, those French firms skew their export sales towards their best performing products; and also extend the range of products sold to that market. We develop a theoretical model of multiproduct firms and derive the specific demand and cost conditions needed to generate these product-mix reallocations. Our theoretical model highlights how the increased competition from demand shocks in export markets - and the induced product mix reallocations - induce productivity changes within the firm. We then empirically test for this connection between the demand shocks and the productivity of multi-product firms exporting to those destinations. We find that the effect of those demand shocks on productivity are substantial - and explain an important share of aggregate productivity fluctuations for French manufacturing.

Suggested Citation

Mayer, Thierry and Melitz, Marc J. and Ottaviano, Gianmarco I.P., Product Mix and Firm Productivity Responses to Trade Competition (November 24, 2016). CFS Working Paper, No. 562. Available at SSRN: https://ssrn.com/abstract=2875415 or http://dx.doi.org/10.2139/ssrn.2875415

Thierry Mayer

Sciences Po ( email )

Marc J. Melitz

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States
617-495-8297 (Phone)
617-417-6536 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Gianmarco I.P. Ottaviano (Contact Author)

Bocconi University - Department of Economics and Paolo Baffi Centre on Central Banking and Financial Regulation ( email )

Via Gobbi 5
Milan, 20136
Italy

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