Internet penetration and multi‐product exporters: Firm‐level evidence from China

This study explores the impact of Internet penetration on the firm‐product‐level behaviour of multi‐product exporters. While a substantial body of literature has explored the effect of the Internet on firm performance, especially extensive and intensive margins, few studies examine the product‐level behaviour within firms. Using highly disaggregated firm‐product‐level data covering Chinese manufacturing industrial firms from 2000 to 2007, we provide evidence on the effects of the Internet on product mix and product switching within firms. Specifically, because of the reduction in export market entry costs, the Internet can encourage more firms to enter the export market and increase market competition, which causes multi‐product exporters to skew exports towards best‐performing products and drop the products furthest away from its core competence. Meanwhile, the Internet can increase multi‐exporters' productivity and encourage firms to introduce new products, which are also further away from the core product. Productivity and competition cause multi‐product exporters to exhibit product switching, which results in the expansion of product scope.