Large multiproduct exporters across rich and poor countries: Theory and evidence

Abstract

I study the welfare effects of trade in the presence of large firms producing multiple varieties. Large multiproduct exporters dominate trade flows and their scope decisions have new implications for the welfare gains from trade. Using exporter-level data from 11 source countries, I document two stylized facts for large multiproduct exporters. First, the product scope increases with the level of development of the destination proxied by per capita income. Second, as evidence of cannibalization effects, a non-monotone, hump-shaped relationship exists between the product scope and market share of a firm. Guided by the evidence, I build a model in which income and cannibalization effects drive the scope decisions of large firms, and I derive a new formula for the welfare gains from trade. Ignoring income or cannibalization effects causes mismeasurement of the welfare gains. The sign and size of the mismeasurement are highly heterogeneous across countries.