Large multiproduct exporters across rich and poor countries: Theory and evidence

TY - JOUR

T1 - Large multiproduct exporters across rich and poor countries: Theory and evidence

AU - Macedoni, Luca

PY - 2022/5

Y1 - 2022/5

N2 - I study the welfare effects of trade in the presence of large firms producing multiple varieties. Large multiproduct exporters dominate trade flows and their scope decisions have new implications for the welfare gains from trade. Using exporter-level data from 11 source countries, I document two stylized facts for large multiproduct exporters. First, the product scope increases with the level of development of the destination proxied by per capita income. Second, as evidence of cannibalization effects, a non-monotone, hump-shaped relationship exists between the product scope and market share of a firm. Guided by the evidence, I build a model in which income and cannibalization effects drive the scope decisions of large firms, and I derive a new formula for the welfare gains from trade. Ignoring income or cannibalization effects causes mismeasurement of the welfare gains. The sign and size of the mismeasurement are highly heterogeneous across countries.

AB - I study the welfare effects of trade in the presence of large firms producing multiple varieties. Large multiproduct exporters dominate trade flows and their scope decisions have new implications for the welfare gains from trade. Using exporter-level data from 11 source countries, I document two stylized facts for large multiproduct exporters. First, the product scope increases with the level of development of the destination proxied by per capita income. Second, as evidence of cannibalization effects, a non-monotone, hump-shaped relationship exists between the product scope and market share of a firm. Guided by the evidence, I build a model in which income and cannibalization effects drive the scope decisions of large firms, and I derive a new formula for the welfare gains from trade. Ignoring income or cannibalization effects causes mismeasurement of the welfare gains. The sign and size of the mismeasurement are highly heterogeneous across countries.

KW - Cannibalization effects

KW - Multiproduct firms

KW - Non-homotheticity

KW - Oligopoly

KW - Welfare gains from trade

U2 - 10.1016/j.jdeveco.2022.102835

DO - 10.1016/j.jdeveco.2022.102835

M3 - Journal article

SN - 0304-3878

VL - 156

JO - Journal of Development Economics

JF - Journal of Development Economics

M1 - 102835

ER -