Product Mix Changes and Performance in Chilean Plants

Abstract

A recent theoretical literature has given relevance to the study of the relationship between product mix changes and firm productivity. In this paper, taking advantage of a rich dataset for manufacturing plants in Chile during the period 1996-2000, we use matching techniques and a difference in difference approach to estimate the causal impact of product mix changes on productivity and other plant-specific outcomes. Our results suggest a positive and increasing impact of product mix changes on total factor productivity and labor productivity after two years the product mix changes are introduced. We also find positive effects on employment and sales. Nevertheless, this positive effect is mainly driven by firms that add and drop products at the same time. Our results are in line with recent theoretical developments on the study of productivity determinants on multiproduct firms and illustrate how products creation and destruction are a source of within-firm productivity growth.