Effect of Foreign Affiliates on Exporting and Markups

Author Name ZHANG Hongyong (Fellow, RIETI) / ZHU Lianming (Kyoto University)
Creation Date/NO. November 2015 15-E-127
Research Project Global Markets and Japan's Industrial Growth
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In this paper, we empirically investigate the effect of foreign affiliates on the relationship between exports and markups of Chinese firms. After recovering quantity-based firm markups by correcting for both output and input price biases, we find evidence that exporters charge higher markups than non-exporters, and this effect is substantially less pronounced for foreign affiliates. We further decompose markups into a price and cost effect and find that the cost effect accounts for the lower markups of foreign-owned exporters. Our results suggest that foreign-owned exporters have a price premium but higher marginal costs on average.

Published: Zhang Hongyong, Lianming Zhu, 2017. "Markups and exporting behavior of foreign affiliates," Journal of Comparative Economics, Vol. 45(3), pp. 445-455