Foreign Upstream Monopoly, Trade Policy and Local Firm's Markup Ratio

Abstract

Abstract: To investigate the economic effects of foreign upstream monopoly is of great significance for an overall understanding of the pros and cons of enterprises embedding in global value chains. Based on the longitudinal relationship of enterprises, this paper expounds and verifies the impact of foreign upstream monopoly on enterprises' markup ratio and its action mechanism, then it further reveals the effects of trade policies in addressing the problems of foreign upstream monopoly. The results suggest that foreign upstream monopoly and firm's markup ratio present an“inverted U-shaped”nonlinear relationship, that is, foreign upstream monopoly has the“first promoting then inhibiting”effect on the firm's markup ratio. Foreign upstream monopoly directly affects the corporate markup ratio through the“production cost”effect. Innovation plays an intermediary role between the foreign upstream monopoly and the corporate markup ratio, that is, through affecting enterprises' innovative behavior, the foreign upstream monopoly exerts an indirect effect on their cost plus. Trade policies of different natures have obvious heterogeneous adjustment effects on the markup ratio of the foreign upstream monopoly. Tariff measures have a weakening effect on foreign upstream monopoly effects, while non-tariffs measures have a strengthening effect.

Key words: upstream monopoly, input-output, corporate markup ratio, trade policy

LIU Dexue, ZHONG Xiangyue. Foreign Upstream Monopoly, Trade Policy and Local Firm's Markup Ratio[J]. JOURNAL OF CONTEMPORARY FINANCE AND ECONOMICS, 2021, 0(1): 92-105.

References

[1] Aghion P., Bloom N., Blundell R., Griflith R., Howitt P.Competition and Innovation: An Inverted-U Relationship[J]. Quarterly Journal of Economics, 2005, 120(2): 701-728.
[2] Asprilla A., Berman N., Cadot O., Jaud M.Trade Policy and Market Power: Firm-Level Evidence[J]. International Economic Review, 2019, 60(4): 1647-1693.
[3] Bartel A.P., Ichniowski C., Shaw K. L. How Does Information Technology Really Affect Productivity? Plant-Level Comparisons of Product Innovation, Process Improvement and Worker Skills[J]. Quarterly Journal of Economics, 2007, 122(4): 1721-1758.
[4] Bernard A.B., Dhyne E., Magerman G., Manova K., Mbxnes A. The Origins of Firm Heterogeneity: A Production Network Approach[R]. NBER Working paper No.25441,2019.
[5] Cadot O., Gourdon J.Non-tariif Measures, Preferential Trade Agreements, and Prices: New Evidence[J]. Review of World Economics, 2016, 152(2): 227-249.
[6] Chakraborty D., Chaisse J., Pahari S.Global Auto Industry and Product Standards: A Critical Review of India's Economic and Regulatory Experience[J]. Journal of Trade Law and Policy, 2020, 19(1): 8-35.
[7] De Loecker J., Goldberg P.K., Khandelwal A. K., Pavcnik N. Prices, Markups, and Trade Reform[J]. Econometrica, 2016, 84(2): 445-510.
[8] De Loecker J., Warzynski L.F. Markups and Firm-Level Export Status[J]. American Economic Review, 2012, 102(6): 2437-2471.
[9] Fan H., Gao X., Li Y.A., Luong T. A. Trade Liberalization and Markups: Micro Evidence from China[J]. Journal of Comparative Economics, 2018, 46(1): 103-130.
[10] Feenstra R.C., Weinstein D. E. Globalization, Markups and U.S. Weliare[J]. Journal of Political Economy, 2017, 125(4): 1040-1074.
[11] Felbermayr G.J., Jung B. Sorting It Out: Technical Barriers to Trade and Industry Productivity[J]. Open Economies Review, 2011,22(1): 93-117.
[12] Fernandes 人,Ferro E., Wilson J. S. Product Standards and Firms'Export Decisions[J]. World Bank Economic Review, 2019, 33(2): 353-374.
[13] Goldberg P.K., Khandelwal A. K., Pavcnik N., Topalova P. Imported Intermediate Inputs and Domestic Product Growth: Evidence From India[J]. Quarterly Journal of Economics, 2010, 125(4): 1727-1767.
[14] Halpern L, Koren M, Szeidl A.Imported Inputs and Productivity[J] American Economic Review, 2015, 105(12): 3660-3703.
[15] Huang X., Zhu Z., Song X.“Low Markup Ratio Puzzle”of Chinese Intermediate Commodity Importers[J]. Management World, 2016, (7): 23-35.
[16] Humphrey J., Schmitz H.How Does Insertion in Global Value Chains Affect Upgrading in Industrial Clusters[J]. Regional Studies, 2002, 36(9): 1017-1027.
[17] Liu Q., Huang J.How Does Product Innovation Affect Corporate Markup Ratio[J]. The Journal of World Economy, 2016, (11): 30-55.
[18] Mao Q., Xu J.Does Intermediate Commodity Trade Liberalization Increase Corporate Markup Ratio?——Evidence from China[J]. China Economic Quarterly,2017, (2): 49-88.
[19] Melitz Mi.J., Ottaviano G. I. P. Market Size, Trade, and Productivity[J|. Review of Economic Studies, 2008, 75(1): 295-316.
[20] Montalbano P., Nenci S., Pietrobelli C.Opening and Linking Up: Firms, GVCs, and Productivity in Latin America[J]. Small Business Economics, 2018, 50(4): 917-935.
[21] Qian X., Fan D., Huang H.Import Competition and Cost Markup of Chinese Manufacturing Enterprises[J]. The Journal of World Economy, 2016, (3): 71-94.
[22] Sun X., Wang J.“Productivity Effect”of Insertion in GVC--Empirical Study Based on Chinese Micro Enterprise Data[J]. Journal of International Trade, 2016, (3): 5-16.
[23] Wei H., Li Z., Zhao C.Structure of Place of Origin for Import of Intermediate Commodities and Chinese Enterprise Productivity[J]. The Journal of World Economy, 2017, (6): 48-71.
[24] Zaclicever D., Pellandra A. Imported Inputs, Technology Spillovers and Productivity: Firm-level Evidence from Uruguay[J]. Review of World Economics, 2018, 154(4): 725-743.
[25] Zhang J., Zheng W.Innovation Effect of Local Enterprises in China under GVC[J]. Economic Research Journal, 2017, (3): 153-167.
[26] Zhang J., Zeng W., Chen Z.Import and Corporate Productivity--Empirical Evidence from China[J]. China Economic Quarterly, 2015, (3): 1029-1052.
[27] Zhu S., Zhong T., Li R.Intermediate Commodity Trade Liberalization and Product Markup Ratio of Multi-Product Export Enterprises[J]. China Industrial Economics, 2018, (1): 41-59.
[28] Zhu Z.Whether Importing Intermediate Commodities Raises Chinese Industrial Enterprises' Markup Ratio[J]. Journal of Zhongnan University of Finance and Economics, 2017, (2): 128-137.