Found 11 article(s) for author 'Marc Melitz'

The Heterogeneous Impact of Market Size on Innovation: Evidence from French Firm-Level Exports

The Heterogeneous Impact of Market Size on Innovation: Evidence from French Firm-Level Exports. Philippe Aghion, Marc Melitz, October 2019, Paper, “We analyze how demand conditions faced by a firm impacts its innovation decisions. To disentangle the direction of causality between innovation and demand conditions, we construct a firm-level export demand shock which responds to aggregate conditions in a firm’s export destinations but is exogenous to firm-level decisions. Using exhaustive data covering the French manufacturing sector, we show that French firms respond to exogenous growth shocks in their export destinations by patenting more; and that this response is entirely driven by the subset of initially more productive firms. The patent response arises 3 to 5 years after a demand shock, highlighting the time required to innovate. In contrast, the demand shock raises contemporaneous sales and employment for all firms, without any notable differences between high and low productivity firms. We show that this finding of a skewed innovation response to common demand shocks arises naturally from a model of endogenous innovation and competition with firm heterogeneity. The market size increase drives all firms to innovate more by increasing the innovation rents; yet by inducing more entry and thus more competition, it also discourages innovation by low productivity firms.Link

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Competitive effects of trade: theory and measurement

Competitive effects of trade: theory and measurement. Marc Melitz, February 2018, Paper, “In this paper, I develop a simple model of heterogeneous exporters to a single destination. This model highlights how the response of producer markups to market-level changes in that destination are intrinsically tied to the induced reallocation of export sales to that destination. I discuss how additional assumptions on the shape of demand (originally advocated by Alfred Marshall as his second law of demand) generate specific predictions for the response of those markups and induced product reallocations to increases in market size and competition in a destination: markups fall and market shares are reallocated towards better performing products.Link

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Product Mix and Firm Productivity Responses to Trade Competition

Product Mix and Firm Productivity Responses to Trade Competition. Marc Melitz, July 2016, Paper, “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.Link

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Product Mix and Firm Productivity Responses to Trade Competition

Product Mix and Firm Productivity Responses to Trade Competition. Marc Melitz, December 2014, Paper. “In this paper, we document how demand shocks in export markets lead French multi-product exporters to re-allocate the product mix sold in those destinations. We develop a theoretical model of multi-product firms that highlight the specific demand and cost conditions needed to generate all those empirical predictions. We then show how the increased competition from the demand shocks in export markets – and the associated product mix responses – lead to substantial productivity improvements for multi-product exporters. Recent studies…” Link

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Heterogeneous Firms and Trade

Heterogeneous Firms and Trade. Marc Melitz, 2015, Paper. “This chapter reviews the new approach to international trade based on firm heterogeneity in differentiated product markets. This approach explains a variety of features exhibited in disaggregated trade data, including the higher productivity of exporters relative to non-exporters, within-industry reallocations of resources following trade liberalization, and patterns of trade participation across firms and destination markets. Accounting for these empirical patterns reveals new mechanisms through which the aggregate…”  Link verified September 24, 2014

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New Trade Models, New Welfare Implications

New Trade Models, New Welfare Implications. Marc Melitz, August 13, 2014, Paper. “We show that endogenous firm selection provides a new welfare margin for heterogeneous firm models of trade (relative to homogeneous firm models). Under some parameter restrictions, the trade elasticity is constant and is a sufficient statistic for welfare, along with the domestic trade share. However, even small deviations from these restrictions imply that trade elasticities are variable and differ across markets and levels of trade costs…” Link

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Missing Gains from Trade?

Missing Gains from Trade? Marc Melitz, February 12, 2014, Paper. “The theoretical result that there are welfare gains from trade is a central tenet of international economics. In a class of trade models that satisfy a “gravity equation,”the welfare gains from trade can be computed using only the open economy domestic trade share and the elasticity of trade with respect to variable trade costs. The measured welfare gains from trade from this quantitative approach are typically relatively modest. In this paper, we suggest a channel for welfare gains that this quantitative approach typically abstracts from…” Link Verified October 13, 2014

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Market Size, Competition, and the Product Mix of Exporters

Market Size, Competition, and the Product Mix of Exporters. Marc Melitz, 2014, Paper. “We build a theoretical model of multi-product firms that highlights how competition across market destinations affects both a firm’s exported product range and product mix. We show how tougher competition in an export market induces a firm to skew its export sales toward its best performing products. We find very strong confirmation of this competitive effect for French exporters across export market destinations. Theoretically, this within-firm change in product mix driven by the trading environment has important repercussions on firm productivity. A calibrated fit…”  Link verified March 28, 2014

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Firm Heterogeneity and Aggregate Welfare

Firm Heterogeneity and Aggregate Welfare. Marc Melitz, March 15, 2013, Paper. “We examine how firm heterogeneity influences aggregate welfare through endogenous firm selection. We consider a homogeneous firm model that is a special case of a heterogeneous firm model with a degenerate productivity distribution. Keeping all structural parameters besides the productivity distribution the same, we show that the two models have different aggregate welfare implications, with larger welfare gains from reductions in trade costs in the heterogeneous firm model. Calibrating parameters to key U.S. aggregate and firm statistics, we find…”  Link verified March 28, 2014

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Dynamic Olley-Pakes Productivity Decomposition with Entry and Exit

Dynamic Olley-Pakes Productivity Decomposition with Entry and Exit. Marc Melitz, February 4, 2013 , Paper. “In this paper, we propose an extension of the productivity decomposition method developed by Olly & Pakes (1996). This extension provides an accounting for the contributions of both firm entry and exit to aggregate productivity changes. It breaks down the contribution of surviving firms into a component accounting for changes in the firm-level distribution of productivity and another accounting for the market share reallocations among those firms…” Link Verified October 13, 2014

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