A Flexible Elasticity Framework for Measuring Firm Internationalization: Theoretical Model and Simulation-Based Evidence

Abstract

This study develops a flexible elasticity framework for measuring firm internationalization. Unlike standard composite indices based on fixed weights, we model internationalization as a heterogeneous elasticity function in which the contribution of each dimension varies across firms. The model generalizes traditional additive approaches by introducing firm-specific elasticities that depend on observable characteristics of the firms. We provide a theoretical characterization of the model and evaluate its properties using simulations. The results show that fixed-weight indices systematically compress heterogeneity and distort firm rankings, whereas the proposed framework preserves structural variation and provides a more consistent representation of internationalization.