Markups and Firm-Level Export Status

34 Pages Posted: 7 Oct 2009

See all articles by Jan De Loecker

Jan De Loecker

Princeton University - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Frederic Warzynski

Aarhus University - Department of Economics and Business Economics

Multiple version iconThere are 3 versions of this paper

Date Written: September 2009

Abstract

Estimating markups has a long tradition in industrial organization and international trade. Economists and policy makers are interested in measuring the effect of various competition and trade policies on market power, typically measured by markups. The empirical methods that were developed in empirical industrial organization often rely on the availability of very detailed market-level data with information on prices, quantities sold, characteristics of products and more recently supplemented with consumer-level attributes. Often, both researchers and government agencies cannot rely on such detailed data, but still need an assessment of whether changes in the operating environment of firms had an impact on markups and therefore on consumer surplus. In this paper, we derive an estimating equation to estimate markups using standard production plant-level data based on the insight of Hall (1986) and the control function approach of Olley and Pakes (1996). Our methodology allows for various underlying price setting models, dynamic inputs, and does not require measuring the user cost of capital or assuming constant returns to scale. We rely on our method to explore the relationship between markups and export behavior using plant-level data. We find that i) markups are estimated significantly higher when controlling for unobserved productivity, ii) exporters charge on average higher markups and iii) firms’ markups increase (decrease) upon export entry (exit). We see these findings as a first step in opening up the productivity-export black box, and provide a potential explanation for the big measured productivity premia for firms entering export markets.

Keywords: control function, exporting behaviour, markups, plant-level data, productivity

JEL Classification: C130, F100, L110

Suggested Citation

De Loecker, Jan and Warzynski, Frederic, Markups and Firm-Level Export Status (September 2009). CEPR Discussion Paper No. DP7450, Available at SSRN: https://ssrn.com/abstract=1484483

Jan De Loecker (Contact Author)

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://pages.stern.nyu.edu/~jdeloeck/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Frederic Warzynski

Aarhus University - Department of Economics and Business Economics ( email )

hermodsvej 22
DK-8230 Åbyhøj
Denmark
+45 89 48 61 95 (Phone)

HOME PAGE: http://www.hha.dk/~fwa/frederic.htm

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