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สถาบันวิจัยเศรษฐกิจป๋วย อึ๊งภากรณ์
Puey Ungphakorn
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Call for Papers: PIER Research Workshop 2025
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Discussion Paperdp
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14 December 2016
20161481673600000
No. 050

Heterogeneous Exporters' Responses to Trade Liberalization in a Two-Dimensional Product Space

Abstract

Multiproduct firms are responsible for the majority of the global trade network. The majority of studies on multiproduct firms that incorporate the notion of core competency — the idea that a firm is more efficient in some products than others — find success in explaining observed empirical patterns. However, because products in these models are represented on a one dimensional interval, the models are unable to capture the fact that products are inherently hierarchical and multidimensional. This paper proposes a way to extend the concept of core competency into a two-dimensional space with an introduction of industries. This allows for a richer prediction on the exporters' responses to a reduction in trade cost. In particular, the differential responses of large and small firms depend on the convexity of the cost function. Using a novel dataset on Thai exporters' responses to Vietnam's tariff reductions in 2001–2008, I find that while all exporters respond to foreign tariff reduction on the intensive margin, they respond differently on the extensive margin. While large firms tend to introduce products within the industry they already have presence in, small firms tend to start exporting products in new industries. This suggests that the cost curve is concave in the product dimension, but is convex in the industry dimension.

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JEL: D24F14L25
Tags: multiproduct firmsinternational tradetrade liberalization
The views expressed in this workshop do not necessarily reflect the views of the Puey Ungphakorn Institute for Economic Research or the Bank of Thailand.
Thiti Tosborvorn
Thiti Tosborvorn
Puey Ungphakorn Institute for Economic Research

Puey Ungphakorn Institute for Economic Research

273 Samsen Rd, Phra Nakhon, Bangkok 10200

Phone: 0-2283-6066

Email: pier@bot.or.th

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