4.2 Patterns of Change in Product Mix

This section examines more in depth the nature of the product mix changes. Specifically, product mix altering behaviour is compared across firms that produce single vs. multiple products/industries/sectors. Continuing firms, i.e., not entering or exiting, are split into groups according to their behaviour of (1) Neither—the firm does not change its product mix (2) Add-the firm only adds products and (3) Drop—the firm only drops products. (4) Both—the firm both adds and drops products. A product is dropped if it is exported in period t but not in period t+1 and added if it is exported in period t but not in period t-1.

Table 9 reports average percentage of continuing firms engaged in each activity over the whole sample, conditional on firm survival. It should be pointed out that Bernard et al. (2006a) find that among firms, exporters are more likely to change their product mix. Since we have product level data only for exporters, there might be a positive bias towards changing product mix in the sample, and this might not reflect the behaviour of all firms in the economy.

It is shown that 94% of all firms alter their product mix by either dropping or adding products or both. These results are much higher than the ones for U.S., where 54% of firms change their product mix. However, in the U.S., adding and dropping contribute almost equally to this behaviour (15% each), whereas in New Zealand, dropping with 10% is more common than adding which is 5%. The majority of firms (79%) both add and drop products.

Note: Table reports average proportion of firms that drop a product, add a product; both add and drop or do not alter their product mix at all according to their production behaviour.

The second and third columns show product mix altering patterns by single and multiple good exporters. For multiple product exporters, the pattern is the same as with all firms, with dropping being more prominent than adding. For single product exporters, the likelihood of adding or dropping a new product is very low (97%), suggesting that there are strong reasons why firms choose not to export more than one product. A comparison of column 2 (single product firms) and column 3 (multiple product firms) shows that single product firms are more likely to leave their product mix unchanged.

The next two columns show similar figures at the industry and sector levels. Main patterns remain the same. Observing similar behaviour at industry and sector levels, which are more easily identified than 10 digit product level, makes us more comfortable about our results due to potential product category mismeasurement problems. In the US, product switching is more likely than industry switching, which is more likely than sector switching, whereas the differences are not so great for New Zealand.

Table 10 shows adding and dropping by single and multiple product exporters, weighted by their value of export share. This shows that at the product level, product mix alteration constitutes a large portion of firms' business, suggesting perhaps that adding new products is more difficult.^[13] Theory predicts that large firms are more likely to add or drop products since more productive firms produce more of each product and have larger total output, and span more industries and sectors that make them more likely to add and drop products. As a result, firms that switch products are likely to account for a larger share of output.

Note: Table reports average percent of firms that drop a product or add a product, weighted by the value of their exports according to whether they are single or multiple product exporters.