Working Paper: CEPR ID: DP10187
Authors: Shangjin Wei; Ziru Wei; Jianhuan Xu
Abstract: The paper provides a first structural-estimation-based assessment of an influential hypothesis that export pioneers are too few relative to social optimum due to knowledge spillover in new market explorations. Such market failure requires two inequalities to hold simultaneously: the discovery cost is greater than any individual firm'?s expected profit but smaller than the sum of all potential exporters' expected profits. Neither has to hold in the data. We estimate the structural parameters based on the customs data of Chinese electronics exports. While we find positive discovery cost and spillovers, "missing pioneers" are nonetheless a low probability event.
Keywords: discovery cost; industrial policy; knowledge spillover
JEL Codes: F10; F13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| discovery costs < expected profits of all potential exporters (F14) | market failure due to missing pioneers (D40) |
| discovery costs > expected profit of any individual firm (D41) | market failure due to missing pioneers (D40) |
| knowledge spillovers from pioneers to follower firms (O36) | low probability of missing pioneers (D80) |
| first mover advantage (D43) | reduced likelihood of missing pioneers (L15) |
| productivity and demand shocks dispersed across firms (J29) | low probability of missing pioneers (D80) |
| existence of positive knowledge spillovers (O36) | premature or excessive pioneering (L26) |