Globalization and the Size Distribution of Multiproduct Firms

Volker Nocke and Stephen Yeaple

No 6948, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We develop a theory of multiproduct firms to analyze the effects of globalization on the distributions of firm size, scope, and productivity. In the model, firms are heterogeneous in how well they cope with expanding their product range. The model generates a negative relationship between firm size and market-to-book ratio, thus explaining the "size-discount puzzle" found in the data. Globalization induces a merger wave that leads to an improvement in average productivity. This improvement is not due to selection effects but rather due to product-level productivity effects. The model predicts that globalization leads to a flattening of the size distribution of firms.

Keywords: Firm heterogeneity; Firm size distribution; Merger wave; Multiproduct firms; Productivity; Size discount; Trade liberalization (search for similar items in EconPapers)
JEL-codes: F12 F15 (search for similar items in EconPapers)
Date: 2008-08
New Economics Papers: this item is included in nep-bec and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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