Monday, October 21, 2013

Globalization and Multiproduct Firms

Volker Nocke, University of Mannheim and CEPR and Stephen Yeaple, Pennsylvania State University discuss Globalization and Multiproduct Firms.

ABSTRACT: We present an international trade model with multiproduct firms. Firms are heterogeneously endowed with two types of capabilities that jointly determine the trade-off within firms between managing a large portfolio of products and producing at low marginal cost. The model can explain many of the documented cross-sectional correlations in firm performance measures, including why larger firms are more productive and more diversified, and yet more diversified firms trade at a discount. Globalization is shown to induce heterogeneous responses across firms in terms of scope and productivity, some of which are consistent with existing empirical work, while others are potentially testable.

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