DP9037 Globalization and Multiproduct Firms

Author(s): Volker Nocke, Stephen R Yeaple
Publication Date: July 2012
Keyword(s): diversification discount, firm heterogeneity, multiproduct firms, productivity, trade liberalization
JEL(s): F12, F15
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=9037

We present an international trade model of multiproduct firms where firms differ in their endowment of managerial resources and in how effectively these resources can be used in making production more efficient. The model gives rise to a trade-off between conglomerate and specialization strategies of firms, yielding testable predictions on the relationship between firm size, scope and productivity. More efficient firms become exporters, but not all exporters are large and not all large firms export. Following a trade liberalization, non-exporters experience a fall in their market-to-book ratio and consolidate the number of products they manage to lower their marginal costs while the opposite holds for exporters.