How Do Multiproduct Exporters React to a Change in Trade Costs?

Abstract

Recent literature has highlighted the major contribution of multi-product firms to international trade activity. Such firms ship several product categories to foreign destinations each time they export. Our objective is to document the contribution of product selection to the reaction of firms further to a change in trade costs. For this, we make use of French firm-level export data, combined with a survey detailing exporters' characteristics. We first show that distance has a negative effect on all dimensions of firms' exports: the export decision, the number of products exported and the average value of exports by product. This contrasts with estimations using annual shipments at the country level, where distance is found to have no effect on the intensive margin. We then use the euro adoption in 1999 as a natural experiment to explore the effects of a change in trade costs over time. We find that, following this change, only the most productive firms increased the number of products that they export to eurozone destinations. No effect is found on the decision to export and the value of exports by product. Where monetary policy coordination preceded, some of the least productive firms stopped exporting or concentrated their exports over a smaller range of product categories, consistent with a tougher competitive environment on eurozone markets after 1999. Overall, our results show that firms' adjustments are made overwhelmingly through changes in the number of products exported.