Multi-Product Firms and Trade Liberalization / Andrew B. Bernard, Stephen J. Redding, Peter K. Schott.

Format:

Book

Author/Creator:

Bernard, Andrew B.

Contributor:

National Bureau of Economic Research.

Redding, Stephen J.

Schott, Peter K.

Series:

Working Paper Series (National Bureau of Economic Research) no. w12782.

NBER working paper series no. w12782

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2006.

Summary:

This paper develops a general equilibrium model of multi-product firms and analyzes their behavior during trade liberalization. Firm productivity in a given product is modeled as a combination of firm-level "ability" and firm-product-level "expertise", both of which are stochastic and unknown prior to the firm's payment of a sunk cost of entry. Higher firm-level ability raises a firm's productivity across all products, which induces a positive correlation between a firm's intensive (output per product) and extensive (number of products) margins. Trade liberalization fosters productivity growth within and across firms and in aggregate by inducing firms to shed marginally productive products and forcing the lowest-productivity firms to exit. Though exporters produce a smaller range of products after liberalization, they increase the share of products sold abroad as well as exports per product. All of these adjustments are shown to be relatively more pronounced in countries' comparative advantage industries.

Notes:

Print version record

December 2006.