Multiproduct Firms, Firm Dynamics, and the Productive Mix of Brazilian Manufacturing Firms

Alves, Juliana Dias; Ferreira, Mauro Sayar

doi:10.1590/0101-41614831jam

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Artigo de Pesquisa • Estud. Econ. 48 (3) • Jul-Sep 2018 • https://doi.org/10.1590/0101-41614831jam copy

Multiproduct Firms, Firm Dynamics, and the Productive Mix of Brazilian Manufacturing Firms^♦ ♦ This work is part of the Doctoral thesis of Juliana Dias Alves, defended in 2015 at the Universidade Federal de Minas Gerais. We would like to thank Naércio Menezes, Mauro Rodrigues Jr., and the anonymous referee for valuable comments and suggestions. We also thank Antonio Braz for his valuable help on how to deal with the dataset and several other discussions. As usual, all errors are our own fault.

Authorship SCIMAGO INSTITUTIONS RANKINGS

Abstract

This paper studies the Brazilian manufacturing sector in line with the literature on heterogeneous firm. We focus i) on the characteristics of firms that are multi-product (MP), multi-sector and multi-industry; and ii) on the analysis of their scope, including the determinants of product switching, behavior over business cycle, and relation with several firm's characteristics. MP corresponds to 37% of all manufacturing firms, but generates 81% of the output. They employ more workers, are more likely to be exporters, have higher labor productivity and higher TFP. The extensive margin due to adding and retirement of products contributes more to output growth than entry and exit of firms. All margins are positive correlated to GDP growth: the intensive margin has an almost perfect correlation, followed by the product margin, with values around 0.91, and then by firm's margin, with correlations around 0.60. When restricting the study to continuing firms, it was found that half of the annual output growth (from 2005 to 2009) was originated by firms that switched products. Those that have net added (dropped) items had higher (smaller) increase in output, in employees, and in the TFP. Having higher TFP, more employees, or being an exporter increase the probability of only adding or only dropping items in the future.

Keywords
Multiproduct; Scope; Total factor productivity; Heterogeneous firms; Extensive margin; Intensive margin; Export

Sector	N.º products (2005)	N.º products (2009)	Absolute variation	N.º industries (2009)
Total	2934	3014	80	258
Food products	301	310	9	31
Beverages	29	28	-1	5
Tobacco products	7	7	0	2
Textiles	138	147	9	14
Wearing apparel	87	89	2	6
Leather and related products	69	71	2	8
Wood, products of wood and cork, except furniture; articles of straw and plaiting materials	44	44	0	5
Paper and paper products	84	87	3	9
Printing and reproduction of recorded media	41	52	11	6
Coke and refined petroleum products	38	40	2	5
Chemicals and chemical products	445	439	-6	25
Basic pharmaceutical products and pharmaceutical preparations	95	89	-6	4
Rubber and plastics products	114	118	4	7
Other non-metallic mineral products	113	111	-2	11
Basic metals	105	113	8	14
Metal products, except machinery and equipment	196	199	3	16
Computer, electronic and optical products	154	161	7	11
Electrical equipment	133	133	0	10
Machinery and equipment n.e.c.	368	374	6	26
Motor vehicles, trailers and semi-trailers	82	84	2	10
Other transport equipment	51	55	4	10
Furniture	69	70	1	4
Other manufacturing	132	139	7	9
Repair and installation of machinery and equipment	39	54	15	10

	Number of varieties produced by each firm
Importance rank in output production	1	2	3	4	5	6	7	8	9	≥ 10
1st	1.00	0.75	0.64	0.58	0.54	0.50	0.49	0.46	0.45	0.45
2nd		0.25	0.25	0.24	0.23	0.22	0.21	0.21	0.20	0.20
3rd			0.11	0.12	0.12	0.12	0.12	0.12	0.12	0.12
4th				0.06	0.07	0.08	0.08	0.08	0.08	0.08
5th					0.04	0.05	0.05	0.05	0.06	0.05
6th						0.03	0.03	0.04	0.04	0.04
7th							0.02	0.02	0.03	0.03
8th								0.01	0.02	0.02
9th									0.01	0.01
10th										0.01

Type of firm	USA	India	Chile	Japan	China	Brazil
Type of firm	Panel A - Percentage of firms (%)
MP	41	47	52	41	47	37
MI	29	33	22	31	34	23
MS	13	24	9	17	9	13
	*Panel B - Contribution to Output (%)^ * The variable used for this analysis varies among articles. In our case we used the output value informed in PIA- Product, 2009.**
MP	91	80	56	78	50	81
MI	87	62	23	70	43	70
MS	76	54	8	51	25	50
	Panel C -Average number of items, industries and sectors
MP	4.0	3.1	3.9	2.7	2.8	3.8
MI	3.1	2.0	2.6	2.9	2.3	2.9
MS	2.5	1.7	2.2	3.1	2.1	2.4

Characteristics	MP	MI	MS
Ln(output)	0.08^* ***** 1%,	0.06^* ***** 1%,	0.04^* ***** 1%,
Ln(n.employees)	0.10^* ***** 1%,	0.08^* ***** 1%,	0.06^* ***** 1%,
Exporter (1 if yes)	0.23^* ***** 1%,	0.19^* ***** 1%,	0.14^* ***** 1%,
Ln(output/employee)	0.04^* ***** 1%,	0.03^* ***** 1%,	0.02^* ***** 1%,
Ln(TFP)	0.00 ^ 5% and	0.00 ^ 5% and	0.00 ^ 5% and

Year (t)	Backward looking (Equation 2)			Forward looking (Equation 3)
Year (t)	Plants producing the item in t and t-2 (B)	Plants adding the item between t-2 and t (A)	Plants born between t-2 and t (N)	Plants producing the item in t and t+2 (B)	Plants dropping the item between t and t+2 (D)	Plants that die between t and t+2 (X)
Panel A. Output share (%)
2005	-	-	-	86	9	6
2007	86	9	e	87	7	6
2009	87	8	5	-	-	-
Panel B. Plants share (%)
2005	-	-	-	58	25	18
2007	56	24	20	60	24	16
2009	57	22	21	-	-	-

Period	Total	Plant Entry and Exit (EX1)			Intensive Margin: produce more or less of existing items			Product Add and Drop (EX2)
Period	Total	Net	Entry	Exit	Net	More	Less	Net	Add	Drop
2005-2006	6.64	-0.71	4.29	-5.00	7.04	17.33	-10.29	0.32	6.06	-5.74
2006-2007	25.15	11.47	13.64	-2.17	12.46	19.59	-7.12	1.22	6.35	-5.13
2007-2008	17.89	0.52	2.22	-1.70	16.63	22.27	-5.64	0.74	5.02	-4.28
2008-2009	-15.88	-0.52	3.83	-4.35	-15.31	9.43	-24.75	-0.05	4.89	-4.94
2005-2009	27.54	2.45	11.73	-9.28	20.99	29.51	-8.52	4.10	13.25	-9.15

Variables	Net Effect				Positive Effects			Negative Effects
Variables	Total	EX1 net	INT net	EX2 net	EX1 entry	INT more	EX2 add	EX1 exit	INT less	EX2 drop
GDP	0.993	0.608	0.964	0.915	0.490	0.940	0.636	0.643	0.974	0.056
GDP manuf.	0.996	0.647	0.952	0.934	0.528	0.928	0.644	0.661	0.962	0.064
GDP invest.	0.983	0.526	0.985	0.894	0.366	0.981	0.472	0.743	0.983	0.237

Action regarding scope	Total	MP	MI	MS	Exporters (NX)	Non Exporters (X)	10% larger^* * With respect to output value. Columns add to 100%.
Panel A: Share of firms
None	37.3	13.2	9.3	7.9	32.5	39.7	28.7
Add product(s) only	9.2	17.1	16.1	15.2	11.8	7.9	14.4
Drop product(s) only	8.9	16.5	14.8	14.1	11.4	7.6	12.9
Both:added and dropped	44.6	53.1	59.9	62.7	44.4	44.8	44.1
Panel B: Share of output (of the specific group of each column)
None	26.6	14.9	9.8	7.7	24.4	37.8	18.8
Add product(s) only	13.9	16.7	16.4	12.9	14.5	11.2	13.6
Drop product(s) only	12.1	14.5	12.9	15.7	12.0	12.4	11.1
Both: added and dropped	47.4	53.9	60.9	63.6	49.1	38.7	56.4

			Changed product mix
Period	Total Surviving (B)	No change in product mix (U)	Total (M+L+E)	More varieties (M)	Less varieties (L)	Same amount of varieties (E)
2005/2006	7.35	4.42	2.94	2.99	-0.55	0.49
2006/2007	13.68	6.55	7.13	3.73	1.61	1.79
2007/2008	17.37	8.34	9.03	6.11	1.92	1.01
2008/2009	-15.36	-7.26	-8.1	-1.91	-4.61	-1.58

Variable	Total surviving (B)	No change in product mix (U)	Changed productive mix
Variable	Total surviving (B)	No change in product mix (U)	Total (M+L+E)	More varieties (M)	Less varieties (L)	Same amount of varieties (E)
GDP growth (%)	0.969	0.965	0.969	0.905	0.979	0.997
GDP manuf growth (%)	0.958	0.952	0.960	0.888	0.974	0.999
GDP invest growth (%)	0.989	0.979	0.994	0.958	1.000	0.967

Variable (characteristic)	Net Add	Net Drop	Observations	R²
D ln(output)	0.1068^* ***** 1%.	-0.1382^* ***** 1%.	18,338	0.05
	(0.0174)	(0.0177)
D In(n.employees)	0.1521^* ***** 1%.	-0.0983^* ***** 1%.	18,338	0.05
	(0.0320)	(0.0325)
D In(TFP)	0.1466^ 5% e	-0.1266^ 5% e	18,338	0.05
	(0.0627)	(0.0638)

Strategy	covariate	T=2006	t=2007	t=2008	t=2009
strategy 1 only add	empl	0.0094^* ***** 1%.	0.0073^* ***** 1%.	0.0093^* ***** 1%.	0.0086^* ***** 1%.
		(0.0017)	(0.0016)	(0.0015)	(0.0013)
	tfp	-0.003^* ***** 1%.	-0.0023^* ***** 1%.	-0.0026^* ***** 1%.	-0.0024^* ***** 1%.
		(0.001)	(0.0009)	(0.001)	(0.0008)
	X	0.0136^* ***** 1%.	0.0141^* ***** 1%.	0.0136^* ***** 1%.	0.0188^* ***** 1%.
		(0.0042)	(0.004)	(0.0038)	(0.0036)
strategy 2 only drop	empl	0.0104^* ***** 1%.	0.0104^* ***** 1%.	0.0118^* ***** 1%.	0.0081^* ***** 1%.
		(0.0016)	(0.0016)	(0.0015)	(0.0014)
	tfp	-0.0028^* ***** 1%.	-0.0021^ 5% e	-0.0037^* ***** 1%.	-0.0016^* * 10%. Authors’ computation.
		(0.001)	(0.001)	(0.0009)	(0.0009)
	X	0.0172^* ***** 1%.	0.0177^* ***** 1%.	0.0149^* ***** 1%.	0.0167^* ***** 1%.
		(0.004)	(0.004)	(0.004)	(0.0039)
strategy 3 add and drop	empl	-0.0134^* ***** 1%.	0.0018	-0.006^ 5% e	-0.0105^* ***** 1%.
		(0.0028)	(0.0028)	(0.0026)	(0.0023)
	tfp	0.0028^*** * 10%. Authors’ computation.	-0.0035**	0.0004	0.002
		(0.0016)	(0.0016)	(0.0015)	(0.0014)
	X	-0.0155^ 5% e	0.0149^ 5% e	-0.0192^* ***** 1%.	-0.0144^ 5% e
		(0.0069)	(0.0069)	(0.0067)	(0.0067)
Prob > Wald		0.0000	0.0000	0.0000	0.0000
Nº OBS.		22545	22989	23549	24343

Code SNC	Description SNC	CNAE
4	Manufacture of non-metallic mineral products	2319,2320,2330,2342,2341,2349,2391,2392,3292
5	Manufacture of basic iron and steel	2411,02412,32421,2422,2429
6	Manufacture of basic precious and non-ferrous metals	2441,2443,2452,2531
7	Manufacture of fabricated metal products, except machinery and equipment	2431,2439,2451,2511,2512,2532,2539,2541,2542,2543,2591,3319,2 592,3292,3299,2599,2593,3319
8	Manufacture of machinery and equipment n.e.c.	2513,3321,2521,2522,2811,2812,2813,2814,2815,2821,2822,2823,2 824,2825,2829,2832,2833,2790,2840,2851,2852,2854,2853,2861,28 62,2863,2864, 2865,2543,2866,2869,2550
10	Manufacture of electrical machinery and apparatus n.e.c.	2751,2759,2892,2710,3321,3731,2732,2733,2721,2740,3295,2790
11	Manufacture of office, accounting and computing machinery, including manufacturing of radio, television and communication equipment and apparatus	2621,2622,2632,3321,2610,26 31,2632,2640,2651
12	Manufacture of motor vehicles, trailers and semi-trailers	2910,2920,2930,3319
13	Manufacture of other transport equipment	2722,2945,2941,2942,2943,2944,2950,3011,3317,3012,3031,3032,3 015,3041,3042,3316,3091,3092,3099
14	Manufacture of wood and of products of wood and cork, including furniture	1610,1621,1622,1623, 3319,1629,3292,3101,3329,3102,3104,3103
15	Manufacture of paper and paper products, publishing and printing	1710, 1721, 1722, 1731, 1732, 1733, 1741, 1742, 1749, 1811, 1812, 1813, 1821, 1822, 1830
16	Manufacture of rubber products	2211,2213,2219
17	Manufacture of basic chemicals	1931,2011,2012,2019,2014
18	Manufacture of refined petroleum products and man-made fibers	2021,2022,2031,2032,2033,2040
19	Manufacture of coke, nuclear fuel and other chemical products	1910,2019,2123,2449,3812,3822,2013,0210,0220,1932,2029,2051,2 052,2062,2071,2072,2073,2091,2092,2093,2094,2099,2680
20	Manufacture of pharmaceuticals, soaps, perfumes and toilet preparations	2110,2121,2122,2123,3250,2061,2063
21	Manufacture of plastic products	2221,2222,2223
22	Manufacture of textiles	1311,1312,1313,1314,1321,1322,1323,1340,1351,1352,1353,1354, 1359,1330
23	Manufacture of wearing apparel; dressing and dyeing of fur	1411,1412,1413,1414
24	Tanning and dressing of leather; manufacture of luggage, handbags, saddlers, harness and footwear	1510,1521,1529,1531,1532,1533,1539,1540
25	Manufcture of coffee products	1081,1082
26	Processing and preserving of fruit and vegetables	1031,1032,1033,1061,1062,1063,1064,1065,1069,195,1210,1220
27	Production, processing and preservation of meat	1013,1011,1012
28	Manufacture of dairy products	1051,1052
29	Manufacture of sugar	1071,1072
30	Manufacture of vegetable oils and fats	1041,1042,1043
31	Manufacture of other food products n.e.c.	0892,0990,1020,1053,1066,1091,4721,1092,1093,1094,1099,1096,1 111,1112,1113,1121,1033,1122
32	Manufacturing n.e.c.	2660,3102,3250,3321,2651,2670,2733,2652,3211,3220,3232,3230, 3240,3319,3299,2092,2229,2399,2829,3092,3212,3299,3329,3831, 3832,3939

Variable	Description	Source
Number of Employees (EMP)	Employees in 12/31 in the reference year : people effectively employed in the company on the date hereof.	PIA Enterprise
Exportation (X)	Dummy variable derived from the target percentage of company sales . Equals 1 if the target percentage for Mercosur and other countries is greater than 0. Assumes value 0 otherwise.	PIA Enterprise
Output	Production value is the sum of production values per informant and product code. In the aggregate , the variable constructed for each product , follows the criteria : Production Value = average value of sales (sales value / quantity sold ) x quantity produced.	Pia Product

Strategy	covariate	t=2007	t=2008	t=2009
strategy 1 only add	empl	0.0084^* ***** 1%.	0.0093^* ***** 1%.	0,0089^* ***** 1%.
	empl	(0.0017)	(0.0016)	(0,0015)
	Tfp	-0.0032^* ***** 1%.	-0.0041^* ***** 1%.	-0,0042^* ***** 1%.
	Tfp	(0.0010)	(0.0009)	(0,0008)
	X	0.0086^ 5% e	0.0114^* ***** 1%.	0,0191^* ***** 1%.
	X	(0.0043)	(0.0040)	(0,0038)
strategy 2 only drop	empl	0.0101^* ***** 1%.	0.0118^* ***** 1%.	0,0093^* ***** 1%.
	empl	(0.0017)	(0.0016)	(0,0015)
	Tfp	-0.0038^* ***** 1%.	-0.0043^* ***** 1%.	-0,0035^* ***** 1%.
	Tfp	(0.0153)	(0.0009)	(0,0009)
	X	0.0153^* ***** 1%.	0.0146^* ***** 1%.	0,0152^* ***** 1%.
	X	(0.0042)	(0.0041)	(0,0041)
strategy 3 add and drop	empl	0.0015	-0.0075^* ***** 1%.	-0,0148^* ***** 1%.
	empl	(0.0030)	(0.0028)	(0,0028)
	tfp	-0.0034^ 5% e	0.0006	0,0024
	tfp	(0.0017)	(0.0015)	(0,0015)
	X	0.0193^* ***** 1%.	-0.0115^* * 10%. Authors’ computation.)	-0,0021
	X	(0.0073)	(0.0070)	(0,0071)
Prob > Wald		0,0000	0.0000	0.0000
Nº OBS.		22,989	23.549	24.343

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E-mail: estudoseconomicos@usp.br

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[TFN1] Source: PIA-Product and PIA-Enterprise (IBGE).

Characteristics	MP	MI	MS
Ln(output)	0.08^* ***** 1%,	0.06^* ***** 1%,	0.04^* ***** 1%,
Ln(n.employees)	0.10^* ***** 1%,	0.08^* ***** 1%,	0.06^* ***** 1%,
Exporter (1 if yes)	0.23^* ***** 1%,	0.19^* ***** 1%,	0.14^* ***** 1%,
Ln(output/employee)	0.04^* ***** 1%,	0.03^* ***** 1%,	0.02^* ***** 1%,
Ln(TFP)	0.00 ^ 5% and	0.00 ^ 5% and	0.00 ^ 5% and