Multiproduct firms, export product scope and trade liberalization: the role of managerial efficiency

Abstract

This paper provides a theoretical and empirical analysis on the effects of one-sided trade liberalization on firms’ export product scope. The model explicitly incorporates the cost of managing production and sales in addition to the usually-modeled production cost. The analysis predicts that the home country’s tariff cut reduces all home firms’ export product scope; whereas in response to the foreign country’s tariff cut, a home firm’s export product scope expands (shrinks) if the firm’s management cost is low (high), independent of the firm’s production cost. These predictions are confirmed by our empirical analysis based data of Chinese firms from 2000 to 2006.