DP10187 Assessing Market Failures in Export Pioneering Activities: A Structural Estimation Approach

Author(s): Shang-Jin Wei, Ziru Wei, Jianhuan Xu
Publication Date: October 2014
Keyword(s): discovery cost, industrial policy, knowledge spillover
JEL(s): F10, F13
Programme Areas: International Trade and Regional Economics, Development Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=10187

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.