Competition and Multi product Exporters

This paper analyzes how competition in the destination market affects the product sales distribution of a multi-product exporter using the Mayer et al. (2014) framework. Their model links a relative increase of the sales of the best performing products of a firm induced by competition in a foreign destination market to productivity gains for the domestic economy in which they produce. The empirical evidence in this paper corroborates the existence of a statistical link between the economic size of a destination market and the shape of the product sales distribution in Belgian firms, in line with the predictions of the Mayer et al. framework. While the calibrated potential productivity effects are within the range of those presented in the literature, the paper analyzes several empirical frailties that indicate that the domestic economy is unlikely to gain much from this competition effect. The statistical link is shown to be substantially weakened once one only considers the products a firm produces itself. Moreover, the paper accounts for the fact that the size and geography of a destination market might not be perfect measures to capture competition. When import competition from Asian countries is used as an alternative proxy for competition in the destination market, the effect is again weakened. Finally, the statistical link is shown to be closely associated to product switching at the firm level, highlighting problems with the workings of the model. On the basis of this evidence, it is argued that the productivity gain from trade is likely modest and hides several complexities.