Product mix changes and performance in Chilean plants

A recent theoretical literature on multiproduct firms has given relevance to the study of the relationship between product mix changes and firm productivity. In this article, taking advantage of a unique data set for manufacturing plants in Chile available for the period 1996-2003, 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 impact of product mix changes on total factor productivity and labor productivity 2 years after the product mix changes were introduced. We also find positive effects on employment and sales. Nevertheless, this positive effect is mainly driven by those firms that add and drop products at the same time. Our results are in line with recent theoretical developments on productivity determinants for multiproduct firms and illustrate how product creation and destruction are a source of within-firm productivity growth.