Explaining Export Varieties: The Role of Comparative Advantage

Abstract

This paper examines how factor proportions determine product varieties, or the extensive margin, in exports of countries. A model of the economy with two countries, two factors, and a multitude of industries with productivity-heterogeneous firms explains the relative number of export varieties in each country. A quasi-Heckscher-Ohlin prediction on export varieties emerges from the model: Countries export more varieties in industries in which the countries have a comparative advantage. Empirical tests using disaggregated data on the U.S. imports confirm the theoretical prediction by showing that relatively (un)skilled-labor abundant countries tend to export more varieties in more (un)skilled-labor intensive industries. The paper provides both a theoretical foundation and empirical evidence for the importance of factor proportions in explaining the pattern of exports of product varieties.