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The cyclical nature of markups in Canadian manufacturing: A production theory approach
Author(s) -
Morrison C. J.
Publication year - 1994
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/jae.3950090304
Subject(s) - economics , marginal cost , profitability index , unemployment , production (economics) , economies of scale , competition (biology) , returns to scale , manufacturing , econometrics , monetary economics , macroeconomics , microeconomics , ecology , finance , biology , political science , law
Abstract In this paper the effects of cost and demand characteristics on the magnitude and cyclical behaviour of markups in Canadian manufacturing are measured within a production theory framework. Price to marginal cost ratios for various manufacturing industries are computed, and the impact art their secular and cyclical trends from changes in capacity utilization, scale economies, variable input prices, import competition, unemployment and other exogenous market and technological determinants are explored using adjusted markup indexes and elasticities. The measured price margins seem weakly procyclical. Further, evaluation of the determinants of these cycles suggests that the procyclical nature of markups is primarily related to exogenous factors affecting costs such as energy price ‘shocks’, and that cost characteristics underlying scale economies provide a countercyclical influence that counteracts the profitability arising from markups.