Exports and Information Spillovers

Abstract:     
A developing country's good (or bad) export performance in one market can affect its future export performance not only in the same market but also in "neighboring" markets. This happens if importers in different countries share information about a particular exporter's performance or if exporters themselves take advantage of the information acquired while exporting to similar markets. Thus, through information spillovers, export success (or failure) becomes cumulative across markets.

Exporters' performance in a particular market may affect their future exports to the rest of the world. Importers may base their future transaction decisions on the information revealed by exporters' past performance in other countries. Similarly, exporters acquire valuable information on foreign consumer tastes, product standards, or customs administration that may profitably be used in future transactions with other countries.

Nicita and Olarreaga estimate the effects of these information spillovers across markets on the export patterns of four developing countries (Egypt, the Republic of Korea, Malaysia, and Tunisia). A dollar increase in exports to the United States generates on average an extra 2 to 14 cents of exports to the rest of the world in the next period.

Social and ethnic networks seem to reinforce these information spillovers, especially in developing countries, where they appear to be geographically more concentrated. The exception is China and to some extent Hong Kong, probably reflecting a geographically more diversified migration pattern.

The exchange of information among current and potential export markets can significantly affect a developing country's export performance. Bilateral information spillovers across markets are negligible or nonexistent for exports from the United States, where there is less need to create a reputation in international markets. Similarly, Egypt's good export performance would be more easily noticed in Argentina or India (where the market is small) than would increased exports to France or the United States.

This paper - a product of Trade, Development Research Group - is part of a larger effort in the group to understand the role of information in developing countries' integration into world markets.

Number of Pages in PDF File: 37

working papers series