Paper / Firm Heterogeneity in Global Market Participation

Farmers and food companies in Japan have expanded their opportunities to engage in global markets through regional economic agreements and domestic export promotion initiatives.However, not all farmers or firms choose to expand their businesses internationally.Additional fixed costs, such as those associated with following different food safety regulations in each destination, influence firms' decisions to enter global markets.International trade research has focused on firm heterogeneity and the processes of firm selection and reallocation linked to global market participation.This mechanism raises the industry's average productivity.Simultaneously, if small-and medium-sized farmers and firms exit, it could undermine efforts to export their collective products, weaken the use of local resources, and harm local economies.To understand these conflicting possibilities, an overview of firm distribution is required.This study empirically examines the relationship between global market participation and firm heterogeneity in Japan's agri-food industry.Firm-level microdata from 8,497 firms across 30 subsectors were analyzed.A rank-size regression analysis was conducted to explore the characteristics of firm size distribution.The findings revealed that firm size distribution in Japan's agri-food industry generally follows a power law, indicating firm heterogeneity.Regarding the link between global market participation and firm heterogeneity, statistically significant differences were found in 17 of the 29 subsectors, many of which produce Japan's top agri-food export products.These results imply that firms engaged in the global market tend to show greater heterogeneity than those operating solely in domestic markets.Global market participation may reflect firm selection and reallocation mechanisms in these subsectors.However, the results differed for the beef and green tea sectors, which are highexport agricultural products.These sectors have promoted regional brands and established joint shipping and export systems.This may result in exporters being composed of homogenous farmers.