|Title||Product differentiation and firm heterogeneity in international trade|
This dissertation consists of three essays that study a key source of heterogeneity between firms engaged in international trade: product differentiation. In the first essay, I compare various ways of measuring the gains from importing new differentiated products. Previous research has relied on aggregated data and avoided complex demand estimation. In contrast, I use a detailed data set on computer printers in India that records the sales of individual models. Furthermore, I estimate two different demand systems: the constant elasticity of substitution CES) model and the random coefficients logit. The CES model, because of its restrictive substitution structure, places larger weight on the gains from increased variety relative to the random coefficients logit. In the second essay, which is joint work with Eduardo Morales, we use product-level data on computer printers to study the cross-country behavior of differentiated multi-product firms. We find that demand patterns are more similar in countries with more similar GDP per capita and of closer geographic location. Furthermore, firms offer more of the same printer models in these markets, leading to variation in product quality as indicated by print speeds. These results suggest that models of multi-product firms and product quality in trade should be combined to better understand the patterns in firm- and product-level data across countries. The third essay, which is joint with Eduardo Morales and Andres Zahler, examines the determinants of where a differentiated products manufacturer decides to export. We allow the profits from each possible destination to depend on how similar this country is to the firms home country “gravity”) and on how similar it is to other destinations the firm has previously exported to “extended gravity”). In order to estimate our model, we use a method based on moment inequalities. We find that the sunk costs of operating in different export destinations are quite small. This reflects the fact that although there is a great deal of hysteresis in firms overall status as exporters, changes in the portfolio of destinations served are common.
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