Product appeal, differences in tastes, and export performance: Evidence for Danish chocolate and confectionery

This paper studies the relationship between domestic market performance and export performance. We employ data on production and trade in the Danish chocolate and confectionery industry to obtain estimates of domestic ‘product appeal’ (reflecting non-price factors of domestic performance). Domestic product appeal is influenced not only by inherent characteristics of the product, but also by the tastes and preferences of domestic consumers. For many consumer goods, tastes depend on customs, culture etc. A product’s domestic appeal is therefore an imperfect predictor of foreign demand (and hence of export performance), especially in destinations where tastes differ substantially from domestic tastes. We combine estimates of domestic product appeal with information on destination-specific exports and a novel measure of differences in tastes across countries to confirm this hypothesis. Results are consistent across both a Tobit model with destination-specific censoring point and the BLP estimator, which additionally reveals substantial heterogeneity in tastes for product appeal within countries across consumers.