Market Size, Trade and Quality: Evidence from French Exporters

Silja Baller

Working Papers from CEPII research center

Abstract: This paper presents the most direct test to date of the key welfare mechanism put forward by Melitz and Ottaviano (2008): the best firms increase sales disproportionately when competing in larger markets. I test this prediction in a quality context where the best firms produce the highest quality. The empirical analysis is guided by a quality-augmentation of Melitz and Ottaviano (2008). I capture product quality empirically using a unique dataset containing firm-level quality ratings. The results are in line with the key prediction of the model. I also find a strong positive relationship between a proxy for consumer quality preference and demand for quality which is consistent with the theory.

Keywords: Heterogenous firms; Flexible mark-ups; Market size; Quality; Complementarities (search for similar items in EconPapers)
JEL-codes: F12 F14 F15 F61 L11 (search for similar items in EconPapers)
Date: 2015-09
New Economics Papers: this item is included in nep-bec and nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:cii:cepidt:2015-14

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