Multimarket Linkages, Trade and the Productivity Puzzle

Noriaki Matsushima and Laixun Zhao

Review of International Economics, 2015, vol. 23, issue 1, 1-13

Abstract: This paper examines the relationship between firms’ productivity improvement and the volume of exports, and shows that it can be sometimes negative, which seems to be an empirical puzzle. The key lies in that we simultaneously take into account intermediate retailers (i.e. vertically) and multimarket linkages (i.e. horizontally). With convex cost functions, when market conditions worsen, the manufacturer increases supply to the retailer who is larger or more efficient in trade cost.

Date: 2015
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