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Demand, costs and product scope in the export market

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  • Aw, Bee Yan
  • Lee, Yi

Abstract

In this paper, we distinguish between the contributions of two dimensions of firm heterogeneity, quality and productivity, to the export performance of Taiwanese multiproduct firms. We develop a theoretical model in which the relative importance of these two dimensions of firm heterogeneity depend on the degrees of product differentiation and cost elasticities of quality improvement. Our empirical results confirm the predictions of the theoretical model. Both quality and productivity play important roles in explaining firm export participation and export scope. Quality contributes more to export decisions for firms in more differentiated product markets and products with lower cost elasticities of quality improvements while productivity effects are stronger in markets with low degrees of product differentiation but high cost elasticities of quality improvements.

Suggested Citation

  • Aw, Bee Yan & Lee, Yi, 2017. "Demand, costs and product scope in the export market," European Economic Review, Elsevier, vol. 100(C), pages 28-49.
    • Handle: RePEc:eee:eecrev:v:100:y:2017:i:c:p:28-49
    DOI: 10.1016/j.euroecorev.2017.07.009
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    Cited by:

    1. Gnangnon, Sèna Kimm, 2020. "Aid for Trade flows and Poverty Reduction in Recipient-Countries," EconStor Preprints 213807, ZBW - Leibniz Information Centre for Economics.
    2. Vandenbussche, Hylke & Aw-Roberts, Bee Yan & Lee, Yi, 2019. "The Importance of Consumer Taste in Trade," CEPR Discussion Papers 13614, C.E.P.R. Discussion Papers.
    3. Mark J Roberts & Daniel Yi Xu & Xiaoyan Fan & Shengxing Zhang, 2018. "The Role of Firm Factors in Demand, Cost, and Export Market Selection for Chinese Footwear Producers," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 85(4), pages 2429-2461.
    4. Vandenbussche, Hylke & Aw-Roberts, Bee Yan & Lee, Yi, 2018. "Decomposing Firm-Product Appeal: How important is Consumer Taste?," CEPR Discussion Papers 12707, C.E.P.R. Discussion Papers.
    5. Lee, Chien-Chiang & Yuan, Zihao & Ho, Shan-Ju, 2022. "How does export diversification affect income inequality? International evidence," Structural Change and Economic Dynamics, Elsevier, vol. 63(C), pages 410-421.
    6. repec:thr:techub:10016:y:2021:i:1:p:261-273 is not listed on IDEAS
    7. Michael Irlacher, 2022. "Multi-product Firms in International Economics," Economics working papers 2022-01, Department of Economics, Johannes Kepler University Linz, Austria.
    8. Bao, Xiaohua & Gao, Lei & Jin, Yu & Sun, Jin, 2023. "Industrial agglomeration and firm exports: Micro-evidence based on input-output linkages," Economic Modelling, Elsevier, vol. 119(C).
    9. Le, Thai-Ha & Nguyen, Canh Phuc & Su, Thanh Dinh & Tran-Nam, Binh, 2020. "The Kuznets curve for export diversification and income inequality: Evidence from a global sample," Economic Analysis and Policy, Elsevier, vol. 65(C), pages 21-39.
    10. Canh Phuc Nguyen & Thanh Dinh Su, 2021. "Export quality dynamics: Multidimensional evidence of financial development," The World Economy, Wiley Blackwell, vol. 44(8), pages 2319-2343, August.
    11. Zhang, Dongyang, 2022. "Environmental regulation and firm product quality improvement: How does the greenwashing response?," International Review of Financial Analysis, Elsevier, vol. 80(C).
    12. Jörg Mayer, 2021. "Development strategies for middle‐income countries in a digital world—Insights from modern trade economics," The World Economy, Wiley Blackwell, vol. 44(9), pages 2515-2546, September.
    13. repec:thr:techub:10014:y:2020:i:1:p:316-327 is not listed on IDEAS
    14. Chu, Lan Khanh & Hoang, Dung Phuong, 2020. "How does economic complexity influence income inequality? New evidence from international data," Economic Analysis and Policy, Elsevier, vol. 68(C), pages 44-57.
    15. Li, Shengyu, 2018. "A structural model of productivity, uncertain demand, and export dynamics," Journal of International Economics, Elsevier, vol. 115(C), pages 1-15.

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    More about this item

    Keywords

    Product differentiation; Product cost elasticity; Productivity; Demand; Export participation;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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