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Testing the Core‐competency Model of Multi‐product Exporters
Author(s) -
Eckel Carsten,
Iacovone Leonardo,
Javorcik Beata,
Neary J. Peter
Publication year - 2016
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12234
Subject(s) - core competency , dominance (genetics) , home market , core (optical fiber) , foreign direct investment , product market , market size , business , competence (human resources) , economics , market penetration , core product , industrial organization , product (mathematics) , international trade , international economics , monetary economics , microeconomics , marketing , market economy , macroeconomics , management , biochemistry , chemistry , materials science , geometry , mathematics , composite material , gene , incentive
We review the implications of the “core‐competence” model of multi‐product firms, including the “market‐size puzzle”: for most countries, the world market is much larger than the home market, while the costs of accessing foreign markets are relatively low; hence the model predicts that most domestic firms should export more of their core products than they sell domestically; yet, in practice, we do not observe this. Extending the model to allow for investment in export market penetration resolves the puzzle and Mexican data confirm its predictions: in particular, only the largest firms exhibit the dominance of exports over home sales.