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Export discoveries, diversification and barriers to entry

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  • Klinger, Bailey
  • Lederman, Daniel

Abstract

The literature on the relationship between economic diversification and development established that diversification rises with development up to a point. Some have argued that market failures reduce private investments that are necessary to find out whether a new product can be exported profitably, thus implying that the threat of entry can reduce export discoveries and consequently hamper diversification. In parallel, the trade literature on the "extensive margin" of trade has focused on the role of fixed costs of exporting, which affects the number and types of firms that enter into exporting activities. This article presents data suggesting that export diversification and export discoveries are correlated over the course of development, and it provides an empirical test of market failures that might deter export discoveries. The findings suggest that the threat of entry by imitators reduces the number of export discoveries within countries and industries for a given rate of growth of non-discovery exports. However, this market-failure effect is less pronounced when allowing for inter-industry spillovers, whereby export discoveries in one industry lead to discoveries in another industry. The policy implication is that barriers to entry should not be used to protect innovators from the threat of imitation, but governments could consider interventions that directly focus on stimulating export discoveries.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Systems.

Volume (Year): 35 (2011)
Issue (Month): 1 (March)
Pages: 64-83

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Handle: RePEc:eee:ecosys:v:35:y:2011:i:1:p:64-83

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Keywords: Export growth Export discoveries Diversification Market failures;

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References

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  1. Simeon Djankov & Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 2002. "The Regulation Of Entry," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 1-37, February.
  2. Feenstra, Robert & Kee, Hiau Looi, 2008. "Export variety and country productivity: Estimating the monopolistic competition model with endogenous productivity," Journal of International Economics, Elsevier, vol. 74(2), pages 500-518, March.
  3. Freund, Caroline & Pierola, Martha Denisse, 2010. "Export entrepreneurs : evidence from Peru," Policy Research Working Paper Series 5407, The World Bank.
  4. Olivier Cadot & Céline Carrere & Vanessa Strauss-Khan, 2011. "Export Diversification:What's behind the Hump?," Working Papers halshs-00556999, HAL.
  5. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2007. "Estimating Trade Flows: Trading Partners and Trading Volumes," NBER Working Papers 12927, National Bureau of Economic Research, Inc.
  6. Wolfgang Mayer, 1984. "The Infant-Export Industry Argument," Canadian Journal of Economics, Canadian Economics Association, vol. 17(2), pages 249-69, May.
  7. Klinger, Bailey & Lederman, Daniel, 2004. "Discovery and development : an empricial exploration of"new"products," Policy Research Working Paper Series 3450, The World Bank.
  8. Imbs, Jean & Wacziarg, Romain, 2000. "Stages of Diversification," CEPR Discussion Papers 2642, C.E.P.R. Discussion Papers.
  9. Ricardo Hausmann & Dani Rodrik, 2002. "Economic Development as Self-Discovery," NBER Working Papers 8952, National Bureau of Economic Research, Inc.
  10. Richard Blundell & Rachel Griffith & Frank Windmeijer, 1999. "Individual effects and dynamics in count data models," IFS Working Papers W99/03, Institute for Fiscal Studies.
  11. Mattias Ganslandt & James R. Markusen, 2001. "Standards and Related Regulations in International Trade: A Modeling Approach," NBER Working Papers 8346, National Bureau of Economic Research, Inc.
  12. Rodrik, Dani, 2004. "Industrial Policy for the Twenty-First Century," Working Paper Series rwp04-047, Harvard University, John F. Kennedy School of Government.
  13. David Hummels & Peter J. Klenow, 2005. "The Variety and Quality of a Nation's Exports," American Economic Review, American Economic Association, vol. 95(3), pages 704-723, June.
  14. Easterly, William & Kraay, Aart, 1999. "Small states, small problems?," Policy Research Working Paper Series 2139, The World Bank.
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Cited by:
  1. Aleksandra Parteka, 2013. "Trade Diversity And Stages Of Development - Evidence On Eu Countries," GUT FME Working Paper Series A 8, Faculty of Management and Economics, Gdansk University of Technology.
  2. Daniel Lederman & William F. Maloney, 2012. "Does What You Export Matter? In Search of Empirical Guidance for Industrial Policies," World Bank Publications, The World Bank, number 9371.

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