Innovation, trade and the size of exporting firms

Letizia Montinari, Massimo Riccaboni () and Stefano Schiavo

No 2015/04, DEM Discussion Papers from Department of Economics and Management

Abstract: This paper contributes to the literature explaining firm-level heterogenenity in the extensive margin of trade, defined as the number of products exported by each firm. We develop a dynamic model where firms must invest in RD to maintain and increase their portfolio of goods: the process of product innovation by incumbent firms is such that the probability to capture new products is a function of the number of varieties already exported. Varieties can also be produced from scratch by new entrepreneurs. The entry/exit dynamics of varieties, together with population growth that characterize the economy, gives rise to a distribution for the number of products exported by each firm with a heavy right tail, which is consistent with the data. This markedly heterogeneous behavior in export markets occur even if we do not assume any heterogeneity in productivity to start with. On the other hand, we assume that differences in export sales across products originate from the demand- side of the model, in the form of a product-specific preference attribute. Finally, a simple extension of the model allows us to derive some interesting insights on the behavior of multi-products firms: sales of different products across destinations are not uncorrelated, but show a rather strict hierarchy.

Keywords: international trade; extensive margin; innovation; preferential attachment; multi-product firms (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-bec, nep-ent, nep-ino, nep-int and nep-sbm
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Related works:
Working Paper: Innovation, Trade and the size of exporting firms (2015)
Working Paper: Innovation trade and the size of exporting firms (2013)
Working Paper: Innovation trade and the size of exporting firms (2013)
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