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The Fickle Fringe and the Stable Core: Exporters’ Product Mix Across Markets

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Lionel Fontagné, Angelo Secchi and Chiara Tomasi

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An overwhelming share of international trade is conducted by a relative small group of large firms that export a broad variety of products to different destinations. In Italy and France, for example, multiproduct exporters typically ship more than five products (HS6) and account for 96% and 95% of total export flows, respectively. The omnipresence and importance of multi-product firms in international trade has generated a new wave of models whose common feature is that firms enter export markets with their most efficient product first, and then expand their scope moving up the marginal-cost ladder. As a consequence, a firm’s successful products in one destination should also be its leading products in all of the firm’s other markets, with the same hierarchy of products being observed across the different destinations. Simple rank correlations show, however, that exporter product mixes are not commonly ordered across destinations. At the same time they are not totally idiosyncratic, firm product sales are only imperfectly correlated across markets.

In this article, Lionel Fontagné, Angelo Secchi and Chiara Tomasi use information on the universe of Italian and French manufacturing exporters and adopt a product vector rather than a single product perspective. They establish new stylized facts consistent with a more complex setup where firms do not have a stable ranking of product mix across markets, but rather adapt their choices to better match destination characteristics. Using sequences of product names and of the corresponding values the authors provide a qualitative and quantitative assessment of the extent to which a firm’s product vectors change across destinations. First, they reveal a substantial degree of dissimilarity between a firm’s local export product vectors and its corresponding global vector. Second, they offer a few potential explanations of this diversity: market demand heterogeneity, reflecting asymmetric preferences for different varieties, market competition and market positioning emerge as significant factors in this respect. Third, L. Fontagné, A. Secchi and C. Tomasi highlight the existence of a stable set of products exported to different destinations but, as opposed to previous empirical work, they find that core product vectors include products that are relatively marginal in terms of export share. The goods in core product vectors are not necessarily characterized by high sales due to product complementarity or technological relatedness.
Overall, the authors’ empirical findings paint a more complex picture of the behavior of multi-product firms in foreign markets. Given the significance of these firms in international trade, they believe that it is important to understand their export patterns. One important avenue for future research is to understand how the firm’s choice of products across destinations in their empirical analysis affects the welfare and distributional consequences of international trade.

Original title of the article: “The Fickle Fringe and the Stable Core: Exporters’ Product Mix Across Markets”
Published in: CESifo Working Paper Series 5889, 2016
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