Publication: Export Discoveries, Diversification and Barriers to Entry
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Published
2011
ISSN
09393625
Date
2012-03-30
Author(s)
Klinger, Bailey
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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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Publication Export Discoveries, Diversification and Barriers to Entry(2010-07-01)The literature on the relationship between economic diversification and development has grown rapidly in recent years, partly due to the surprising finding that diversification rises with gross domestic product per capita up to a certain point. Export diversification along the extensive margin is inextricable from the introduction of new export products. The authors test the hypothesis that the threat of imitation inhibits the introduction of new exports -- export discoveries -- under the assumption that the intensive and extensive margins of exports are correlated within broad country-industry groups. Econometric evidence from panel-data techniques that are appropriate for count data (the number of discoveries) suggests that discoveries within countries and industries rise with the growth of exports along the intensive margin (relative to the growth of non-export gross domestic product) but the magnitude of this partial correlation increases with domestic barriers to entry and with customs delays in exporting. However, the magnification effect of barriers to entry appears to be less significant as a determinant of total within-country export discoveries. This is consistent with inter-industry and within-country spillovers related to export discoveries, implying that barriers to entry enhance the effect of export growth on discoveries within country-industries but total discoveries might be unaffected by barriers to entry.Publication Innovation and Export Portfolios(World Bank, Washington, DC, 2006-08)This paper examines the link between sectoral concentration and overall performance in the search for on-the-frontier innovations, inside-the-frontier innovations, and export booms. It extends the literature by increasing country coverage and the types of search processes considered, and by focusing on the links with overall performance in these search processes. After controlling for the necessary relationships as well as fixed effects at the country/commodity group level, the paper finds a clear negative relationship between the concentration of innovation portfolios and performance: countries that are the most successful in these search processes have their successes spread across a broader range of industries than those with poorer performance. Furthermore, the search for export booms exhibits the least amount of sectoral concentration and path-dependence. These findings suggest that public support for these processes need not be focused in a narrow range of sectors, and modeling of these processes in theoretical work, particularly in the search for export booms, should be of a stochastic flavor.Publication Diversification, Innovation, and Imitation inside the Global Technological Frontier(World Bank, Washington, DC, 2006-04)Recent research highlights the relationship between economic development and productive diversification, which may be hindered by market failures. After identifying stages of diversification in disaggregated export data, the authors develop a metric for the flows of export "discoveries," or inside-the-frontier innovations in developing countries. They then explore the empirical relationship between economic development and (1) inside-the-frontier-innovation as reflected by the introduction of new export products, (2) export diversification measured by an index of export-revenue concentration, and (3) on-the-frontier innovation as reflected in patents. The data suggest, unsurprisingly, that inside-the-frontier innovation is more common among poor countries than among industrial economies. Overall export diversification increases at low levels of development but declines with development after a high-income point, whereas patenting activity rises exponentially with development. The data also suggest that the relationship between the frequency of export discoveries and economic development is not due to changes in the industrial composition of exports. The authors use a simple model of innovation and imitation to test the hypothesis that the threat of imitation inhibits the discovery of new exports. Econometric evidence suggests that the frequency of export discoveries across countries rises with the returns of export activities (proxied by exogenous export growth during the sample period), but the magnitude of this effect increases with barriers to entry. The count-data estimations deal with unobserved international heterogeneity, and the results are robust to various changes in the specification of the empirical model. This finding supports the hypothesis that market failures inhibit inside-the-frontier innovation.Publication Discovery and Development: An Empricial Exploration of "New" Products(World Bank, Washington, D.C., 2004-11)The authors use disaggregated export data to explore the relationship between economic discovery and economic development. They find that discoveries, or episodes, when countries begin exporting a new product are not limited to so-called "dynamic" industries. Rather, they also occur in traditional sectors such as agriculture. In addition, the data suggest discovery is a component of the stages of productive diversification that occur with development, following a consistent pattern-discovery activity peaks at the lower-middle income level and then declines. Based on this pattern, the authors show that discovery in the 1990s occurred with a higher than expected frequency in Eastern Europe and Central Asia, and lower than expected frequency in Sub-Saharan Africa. Discovery is not found to be a product of structural transformation based on changing factor endowments across income levels. Beyond export growth, population, and development, there are no significant and positive relationships between the expected drivers of entrepreneurship and the frequency of discovery. Combined with the finding that higher absorptive capacity and lower barriers to entry are associated with a reduction in discovery, this suggests that market failures arising from imitation and free-riding may be inhibiting the emergence of new export products in developing countries.Publication Watching More Than the Discovery Channel : Export Cycles and Diversification in Development(World Bank, Washington, DC, 2007-08)This paper examines the export performance of 99 countries over 1995-2004 to understand the relative roles of export growth through "discovery" of new products and growth during post-discovery phases of the export product cycle -- acceleration and maturation -- in existing markets and expansion into new geographic markets. The authors find that expanding existing products in existing markets (growth at the intensive margin) has greater weight in export growth than diversification into new products and new geographic markets (growth at the extensive margin). Moreover, growth into new geographic markets appears to be more important than discovery of new export products in explaining export growth. Of particular importance is whether an exporting country succeeds in reaching more national markets that are already importing the product it makes. This geographic index of market penetration is a powerful explanatory variable of export performance. This suggests that governments should not focus solely or even primarily on the discovery channel, but also seek to identify and address market failures that are constraining exporters in subsequent phases of the export cycle.
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