Working Paper: CEPR ID: DP11049
Authors: Carsten Eckel; Leonardo Iacovone; Beata Javorcik; J. Peter Neary
Abstract: We review the implications of the "core competence" model of multi-product firms, including the "market-size paradox": for most countries, the world market is much larger than the home market, while the costs of accessing foreign markets are relatively low; hence the model predicts that most domestic firms should export more of their core products than they sell domestically; yet, in practice, we do not observe this. Extending the model to allow for investment in export market penetration resolves the puzzle, and Mexican data confirm its predictions: in particular, only the largest firms exhibit the dominance of exports over home sales.
Keywords: core competence model; export market penetration; costs; flexible manufacturing; multiproduct firms
JEL Codes: F12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| firm productivity (D22) | export performance (F17) |
| firm size (L25) | export behavior (F10) |
| investment in export market penetration (F10) | resolution of market size paradox (D49) |
| export market penetration costs (F10) | predictions of the model (C52) |
| core competence model (F12) | export of core products (F10) |
| exported products (F10) | sold at home (D19) |
| productivity (O49) | ratio of export to home sales (F10) |