Abstract:

The paper attempts to explore exporting decisions of heterogeneous firms by endogenously determining both the number of exporting destinations/countries, and the number of varieties for differentiated goods, which is, as we know so far, the first paper to explicitly provide both numbers simultaneously in the literature. Extending from the Melitz’s framework (Melitz, 2003), it endogenizes the number of exporting destinations and the number of varieties for differentiated goods for a heterogeneous firm, while providing the cutoff value of transportation cost for the firm’s exporting that is different from Melitz’s (2003) and other related literatures. Moreover, it shows such numbers are constant at equilibria and they converge to these upper bounds with productivity we find.

In addition, while we show such functions of variety and exporting destinations with respect to productivity are concave, the critique values to ensure the concavity are constant as well and same for both functions, which is surprisingly interesting. Our empirical tests prove theoretical results above as well.