DP11049 Testing The Core-Competency Model Of Multi-Product Exporters

Author(s): Carsten Eckel, Leonardo Iacovone, Beata Javorcik, J Peter Neary
Publication Date: January 2016
Keyword(s): core competence model, export market penetration costs, flexible manufacturing, multi-product firms
JEL(s): F12
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=11049

We review the implications of the "core competence" model of multi-product firms, including the "market-size paradox": for most countries, the world market is much larger than the home market, while the costs of accessing foreign markets are relatively low; hence the model predicts that most domestic firms should export more of their core products than they sell domestically; yet, in practice, we do not observe this. Extending the model to allow for investment in export market penetration resolves the puzzle, and Mexican data confirm its predictions: in particular, only the largest firms exhibit the dominance of exports over home sales.