Being at the core: firm product specialisation

TL;DR

This paper introduces a new measure called product coreness to analyze how central products are within a firm's export basket, revealing that higher coreness correlates with larger export flows and has implications for national export performance.

Contribution

The paper develops a novel measure of product coreness and demonstrates its significance for understanding firm and country-level export dynamics.

Findings

Firms' export basket composition remains relatively stable year-to-year.

Products with higher coreness are more likely to be retained and have larger export flows.

Higher product coreness at the country level correlates with increased aggregate export flows.

Abstract

We propose a novel measure to investigate firms' product specialisation: product coreness, that captures the centrality of exported products within the firm's export basket. We study product coreness using firm-product level data between 2018 and 2020 for Colombia, Ecuador, and Peru. Three main findings emerge from our analysis. First, the composition of firms' export baskets changes relatively little from one year to the other, and products far from the firm's core competencies, with low coreness, are more likely to be dropped. Second, higher coreness is associated with larger export flows at the firm level. Third, such firm-level patterns also have implications at the aggregate level: products that are, on average, exported with higher coreness have higher export flows at the country level, which holds across all levels of product complexity. Therefore, the paper shows that how closely a product fits within a firm's capabilities is important for economic performance at both the firm and country level. We explore these issues within an econometric framework, finding robust evidence both across our three countries and for each country separately.