Monopsony Power and Export Product Quality

65 Pages Posted: 27 Jul 2023

See all articles by Jian Cao

Jian Cao

Peking University

Enze Xie

School of Economics, Zhejiang University

Miaojie Yu

Liaoning University

Abstract

With mounting interest in the interaction between trade and imperfectly competitive labor markets, this paper proposes a novel product quality upgrading mechanism to link the two. This paper extends the Melitz model by incorporating monopsonistically competitive labor markets and firms' endogenous quality choices. The model predicts that firms produce and export high-quality products in response to increasing marginal costs stemming from labor market imperfection, which can be viewed as the generalized Washington apple effect. Using detailed Chinese firm production and export data, the empirical evidence confirms the model's prediction. Using the minimum wage and shift-share-based predicted migration as instrumental variables for firms' monopsony power, the empirical results further confirm the existence of the causality. Further analysis using quota cancellation under the Multifiber Arrangement as an exogenous demand shock finds that the impact of firms' monopsony power on their export product quality is stronger for firms experiencing output expansion.

Keywords: Product Quality, Monopsony Power, Washington Apple Effect, Increasing Marginal Cost

Suggested Citation

Cao, Jian and Xie, Enze and Yu, Miaojie, Monopsony Power and Export Product Quality. Available at SSRN: https://ssrn.com/abstract=4523244 or http://dx.doi.org/10.2139/ssrn.4523244

Jian Cao

Peking University ( email )

No. 38 Xueyuan Road
Haidian District
Beijing, 100871
China

Enze Xie

School of Economics, Zhejiang University ( email )

Miaojie Yu (Contact Author)

Liaoning University ( email )

Shenyang
China

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
147
Abstract Views
374
Rank
403,700
PlumX Metrics