Extensive margins of trade and profitability: evidence from Taiwan

Do trading activities matter for a firm's profitability? This study uses administrative data to examine the relationship between trade activities and profitability for Taiwanese manufacturing firms from 2006 to 2016. Our result shows that trading firms (two-way trade, exporter only, and importer only) have higher profitability than local firms, which do not engage in trade. Moreover, our findings indicate that firms with diversified products and diverse countries as trading partners can increase firm profitability have profit advantages. In addition, we find that country diversification has a stronger effect on profitability than product diversification.