Working Papers,
University of Aarhus, Aarhus School of Business, Department of Economics

Abstract: We derive an estimating equation to estimate markups using the insight of Hall (1986) and the control function approach of Olley and Pakes (1996). We rely on our method to explore the relationship between markups and export behavior using plant-level data. We find significantly higher markups when we control for unobserved productivity shocks. Furthermore, we find significant higher markups for exporting firms and present new evidence on markup-export status dynamics. More specifically, we find that firms’ markups significantly increase (decrease) after entering (exiting) export markets. We see these results 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: Markups; Control Function; Productivity; Exporting Behavior

JEL-codes: A10

40 pages, January 1, 2009

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