Product Variety and the Magnitude and Geographical Scope of Firms’ Exports: An Empirical Analysis

Abstract

Preference for variety on behalf of consumers suggests that variety in supply is a pertinent characteristic of individual firms. This paper studies the relationship between export variety and exports on a cross-section of exporting firms in Sweden. Multi-product firms, i.e., firms which export a set of products, are motivated by economies of scope. It is maintained that such firms have advantages in export markets through the materialization of economies of scope. Extensive and intensive margins are computed by firm as well as by firm and market such that the respective contribution of each margin to estimated relationships is revealed. In a regression of the size of export sales on the number of export products, controlling for productivity, size and industry heterogeneity, the coefficient estimate is found to be significant and positive. Firms with larger export variety export more, of which 67% can be ascribed to a larger set of export markets (the extensive margin). It is also shown that the variety of firms’ market-specific export flows varies positively with market size and negatively with distance.