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International Trade and Product Variety - a firm level study

Author

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  • Andersson, Martin

    () (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)

Abstract

This paper adds to the knowledge of the relationship between international trade and product variety by analyzing the relationship between variety in export supply and exports at the firm-level. Using highly detailed firm-level export data in 2003, the paper finds clear empirical evidence for gains from variety in export supply at the level of individual firms. By applying a decomposition methodology related to Hummels & Klenow (2004), it is shown that these gains can be attributed to a larger amount of markets served and larger export sales per market, roughly on a 50-50 basis. The paper also examines how the export variety of firms varies with distance and GDP across markets. The variety of a firm’s export flows to a market increases with the market’s GDP but decreases with distance. The paper estimates that 15 % of the larger export sales to a market with larger GDP can be attributed to a larger number of products exported to the market. Moreover, the paper finds empirical support for quality differentiation on the behalf of individual firms among markets with different GDP. About one third of the effect of GDP on the total value of the export flows to a market can be ascribed to higher average prices per kilogram of the export products. Products shipped over longer distances tend also to have higher average prices per kilogram.

Suggested Citation

  • Andersson, Martin, 2005. "International Trade and Product Variety - a firm level study," Working Paper Series in Economics and Institutions of Innovation 43, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
  • Handle: RePEc:hhs:cesisp:0043
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    Keywords

    exports; product variety; international trade; multi-product firms;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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