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Innovation, Trade and the size of exporting firms

Author

Listed:
  • Letizia Montinari

    (European Commission, joint research center, Institute for prospective Technological Studies Auhor-Email :)

  • Massimo Riccarboni

    (IMT Institute for advanced studies, Lucca KU Leuven)

  • Stefano Schiavo

    (OFCE-SciencesPo Paris and University of Trento)

Abstract

This paper contributes to the literature explaining firm-level heterogeneity in the extensive margin of trade, defined as the number of products exported by each firm. We develop a dynamic model where firms must invest in R&D to maintain and increase their portfolio of goods: the process of product innovation by incumbent firms is such that the probability to capture new products is a function of the number of varieties already exported. Varieties can also be produced from scratch by new entrepreneurs. The entry/exit dynamics of varieties, together with population growth that characterize the economy, gives rise to a distribution for the number of products exported by each firm with a heavy right tail, which is consistent with the data. This markedly heterogeneous behavior in export markets occur even if we do not assume any heterogeneity in productivity to start with. On the other hand, we assume that differences in export sales across products originate from the demandside of the model, in the form of a product-specific preference attribute. Finally, a simple extension of the model allows us to derive some interesting insights on the behavior of multi-products firms: sales of different products across destinations are not uncorrelated, but show a rather strict hierarchy.

Suggested Citation

  • Letizia Montinari & Massimo Riccarboni & Stefano Schiavo, 2015. "Innovation, Trade and the size of exporting firms," Documents de Travail de l'OFCE 2015-06, Observatoire Francais des Conjonctures Economiques (OFCE).
  • Handle: RePEc:fce:doctra:1506
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    Keywords

    Endogenous Growth; Market Structure; Financial Frictions; Corporate Gover- nance.;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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