Export Discoveries, Diversification and Barriers to Entry

Posted: 1 Aug 2011

See all articles by Bailey Klinger

Bailey Klinger

Center for International Development

Daniel Lederman

World Bank - Latin America and Caribbean Region

Multiple version iconThere are 2 versions of this paper

Date Written: 2011

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.

Keywords: Export growth, Export discoveries, Diversification, Market failures

JEL Classification: O31, F10

Suggested Citation

Klinger, Bailey and Lederman, Daniel, Export Discoveries, Diversification and Barriers to Entry (2011). Economic Systems, Vol. 35, No. 1, 2011, Available at SSRN: https://ssrn.com/abstract=1899627

Bailey Klinger

Center for International Development ( email )

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HOME PAGE: http://bwklinger.googlepages.com

Daniel Lederman (Contact Author)

World Bank - Latin America and Caribbean Region ( email )

1818 H Street NW
Washington, DC 20433
United States

HOME PAGE: http://sites.google.com/site/danielledermanworldbank/

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