FIRM SIZE AND THE PATTERN OF DIVERSIFICATION

In this paper, the entry of firms into the foreign market is treated a sa form of diversification that is an alternative to the more conventi onal form of product diversification. We develop a firm-level total in dex of diversification which comprises of product-line and geographica l diversities. Using semi-parametric regression techniques, we analyze the relationship between various forms of diversification and Srm siz e in five major manufacturing industries in Taiwan. Our findings indic ate that diversification need not be solely a large film phenomenon as observed in developed countries. Among small and medium firms, the mo st common form of diversification consists of diversifying into a diff erent geographical market. The positive relation between firm size and product diversification typically found in developed countries is lim ited to large exporting firms in Taiwan. (C) 1998 Elsevier Science B.V .