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Innovation, trade and the size of exporting firms

Author

Listed:
  • Letizia Montinari

    ()

  • Massimo Riccaboni

    ()

  • Stefano Schiavo

    ()

Abstract

This paper contributes to the literature explaining firm-level heterogenenity 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 RD 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 demand- side 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 Riccaboni & Stefano Schiavo, 2015. "Innovation, trade and the size of exporting firms," DEM Discussion Papers 2015/04, Department of Economics and Management.
  • Handle: RePEc:trn:utwpem:2015/04
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    Keywords

    international trade; extensive margin; innovation; preferential attachment; multi-product firms;

    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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