CEPII, Recherche et Expertise sur l'economie mondiale
Product Mix and Firm Productivity Responses to Trade Competition

Thierry Mayer
Marc Melitz
Gianmarco Ottaviano

 Highlights :
  • Demand shocks on export markets yield productivity increases
  • The boost in productivity of French exporters goes through a change in the product mix favoring the best products of the firm
  • We develop a theoretical framework that shows the demand and cost conditions necessary to yield those empirical findings

 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 multi-product 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.

 Keywords : Multiproduct Firms | Productivity | Trade

 JEL : F1
CEPII Working Paper
N°2016-17, July 2016

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 Domaines d'expertise

Commerce & Mondialisation