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Product Mix and Firm Productivity Responses to Trade Competition

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Abstract

We document how demand shocks in export markets lead French multi-product exporters to reallocate 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.
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hal-03393193 , version 1 (21-10-2021)

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Thierry Mayer, Marc Melitz, Gianmarco Ottaviano. Product Mix and Firm Productivity Responses to Trade Competition. 2016. ⟨hal-03393193⟩
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