Product Mix and Firm Productivity Responses to Trade CompetitionHighlights :
- 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
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