Globalization and the Size Distribution of Multiproduct Firms

37 Pages Posted: 2 Dec 2008

See all articles by Volker Nocke

Volker Nocke

University of Mannheim

Stephen R. Yeaple

Pennsylvania State University - College of the Liberal Arts - Department of Economic; National Bureau of Economic Research (NBER)

Date Written: August 2008

Abstract

We develop a theory of multiproduct firms to analyze the effects of globalization on the distributions of firm size, scope, and productivity. In the model, firms are heterogeneous in how well they cope with expanding their product range. The model generates a negative relationship between firm size and market-to-book ratio, thus explaining the "size-discount puzzle" found in the data. Globalization induces a merger wave that leads to an improvement in average productivity. This improvement is not due to selection effects but rather due to product-level productivity effects. The model predicts that globalization leads to a flattening of the size distribution of firms.

Keywords: firm heterogeneity, firm size distribution, merger wave, multiproduct firms, productivity, size discount, trade liberalization

JEL Classification: F12, F15

Suggested Citation

Nocke, Volker and Yeaple, Stephen R., Globalization and the Size Distribution of Multiproduct Firms (August 2008). CEPR Discussion Paper No. DP6948. Available at SSRN: https://ssrn.com/abstract=1307538

Volker Nocke (Contact Author)

University of Mannheim ( email )

Stephen R. Yeaple

Pennsylvania State University - College of the Liberal Arts - Department of Economic ( email )

524 Kern Graduate Building
University Park, PA 16802-3306
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National Bureau of Economic Research (NBER)

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