New exports from emerging markets: do followers benefit from pioneers ?

Wagner, Rodrigo and Zahler, Andrés (2011): New exports from emerging markets: do followers benefit from pioneers ?

Abstract

Since Arrow (1962), spillovers from pioneer to follower in non-excludable innovations are central to our understanding of endogenous economic growth. Nonetheless, evidence of these spillovers in less-developed economies has been elusive. Our paper contributes by showing novel facts consistent with externalities in new export products. To avoid biases towards ex-post successes, we use data on the universe of customs transactions from Chile (1990- 2006). We find that, first, follower firms are more likely to enter a product if the pioneer firm survives exporting. More importantly, we also find that pioneers enter and remain smaller than followers, which is indicative that the first exporter may not be the firm that benets the most from the discovery. This fact is inconsistent with the currently standard view in international trade, in which the largest firm would be the first willing to pay a homogeneous sunk cost of exporting. In contrast, our facts are consistent with the view that smaller pioneer exporters are data producers, whose spillovers benet larger followers. We offer a simple model to formalize this intuition, based on the idea that large exporters have more choices on how to allocate their managerial capacity. This real option makes large exporters wait, as to assign their marginal manager on the best possible project. In contrast, smaller and more focused firms prefer to be pioneers.

• Item Type: MPRA Paper
• Language: English
• Keywords: economic growth; innovation; externalities; first-mover-advantage
• Subjects: F - International Economics > F1 - Trade > F14 - Empirical Studies of Trade; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L26 - Entrepreneurship; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General

References

Agarwal, R. (1997): Survival of Firms over the Product Life Cycle, Southern Economic Journal, 63(3), 571-584.

Agarwal, R., and M. Gort (1996): The Evolution of Markets and Entry, Exit and Survival of Firms, The Review of Economics and Statistics, 78(3), 489-498.

Aghion, P., and J. Tirole (1994): The Management of Innovation, The Quarterly Journal of Economics, 109(4), 1185-1209.

Agosin, M., and C. Bravo-Ortega (2009): The Emergence of New Successful Export Activities in Latin America: The Case of Chile, Inter American Development Bank RES Working Papers.

Albornoz, F., G. Corcos, E. Ornelas, and H. F. C. Pardo (2010): Sequential Exporting, Centre for Economic Performance Discussion Paper No 974.

Alvarez, R. (2004): Sources of export success in small-and medium-sized enterprises: the impact of public programs, International Business Review, 13(3), 383-400.

Alvarez, R. (2007): Explaining export success: firm characteristics and spillover effects, World development, 35(3), 377-393.

Alvarez, R., and G. Crespi (2000): Exporter performance and promotion instruments: Chilean empirical evidence, Estudios de economia, 27(2), 226.

Alvarez, R., H. Faruq, and R. A. Lopez (2007): New Products in Export Markets: Learning from Experience and Learning from Others, Indiana University.

Alvarez, R., and R. Fuentes (2009): Entry into Export Markets and Product Quality Differences, Banco Central de Chile working paper, 536.

Alvarez, R., and H. Görg (2009): Multinationals and Plant Exit: Evidence from Chile, International Review of Economics and Finance, 18(1), 45-51.

Alvarez, R., and R. A. Lopez (2005): Exporting and performance: evidence from Chilean plants, Canadian Journal of Economics, pp. 1384-1400.

Amsden, A. H. (1992): Asia's next giant: South Korea and late industrialization. Oxford University Press, USA.

Andersen, O. (1993): On the Internationalization Process of Firms: A Critical Analysis., Journal of International Business Studies, 24(2).

Antràs, P. (2003): Firms, Contracts, and Trade Structure, The Quarterly Journal of Economics, 118(4), pp. 1375-1418.

Arkolakis, C. (2009): Market Penetration Costs and the New Consumers Margin in International Trade, NBER working paper No. 14214.

Aron, D., and E. Lazear (1990): The introduction of new products, The American Economic Review, 80(2), 421-426.

Bernard, A. B., and J. B. Jensen (1999): Exceptional exporter performance: cause, effect, or both?, Journal of international economics, 47(1), 1-25.

Bernard, A. B., S. J. Redding, and P. K. Schott (2006): Multi-product firms and product switching, NBER working paper.

Besedes, T., and T. J. Prusa (2006a): Ins, outs, and the duration of trade, Canadian Journal of Economics, 39(1), 266-295.

Besedes, T., and T. J. Prusa (2006b): Product differentiation and duration of US import trade, Journal of International Economics, 70(2), 339-358.

Bhagwati, J., et al. (1971): The generalized theory of distortions and welfare, Trade, Balance of Payments and Growth, pp. 69-90.

Bresnahan, T., S. Greenstein, and R. Henderson (2010): Schumpeterian competition and diseconomies of scope; illustrations from the histories of Microsoft and IBM, NBER 50 years.

CEPII (2010): BACI and CHELEM trade databases.

Chandra, V. (ed.) (2006): Technology, Adaptation and Exports. How some developing countries got it right. World Bank.

Clerides, S., S. Lach, and J. Tybout (1998): Is learning by exporting important? Microdynamics from Colombia , Mexcio and Morocco, The Quarterly Journal of Economics, pp. 903-947.

Comin, D., and B. Hobijn (2004): Cross-country technology adoption: making the theories face the facts, Journal of Monetary Economics, 51(1), 39-83.

Conley, T., and C. Udry (2010): Learning about a New Technology: Pineapple in Ghana, The American Economic Review, 100(1), 35-69.

Cui, G., and H. Lui (2005): Order of entry and performance of multinational corporations in an emerging market: A contingent resource perspective, Journal of International Marketing, 13(4), 28-56.

Da Rocha, A., J. Monteiro, B. Kury, and A. Darzé (2008): The Emergence of New and Successful Export Activities in Brazil: Four Case Studies from the Manufacturing and the Agricultural Sector, RES Working Papers.

Duflo, E., M. Kremer, and J. Robinson (2009): Nudging Farmers to Use Fertilizer. Theory and Experimental Evidence from Kenya, NBER Working Paper 15131.

Eaton, J., M. Eslava, C. Krizan, M. Kugler, and J. Tybout (2010): A Search and Learning Model of Export Dynamics, mimeo.

Eaton, J., M. Eslava, M. Kugler, and J. Tybout (2008): Export dynamics in Colombia: Transactions level evidence, The Organization of Firms in a Global Economy.

Eaton, J., M. Eslava, M. Kugler, and J. R. Tybout (2007): Export dynamics in Colombia: Firm-level evidence, NBER Working Paper.

Eaton, J., S. Kortum, and F. Kramarz (2004): Dissecting trade: Firms, industries, and export destinations, American Economic Review, 94(2), 150-154.

Eckel, C., and J. P. Neary (2010): Multi-product firms and flexible manufacturing in the global economy, Review of Economic Studies, 77(1), 188-217.

Foster, A. D., and M. R. Rosenzweig (2010): Microeconomics of Technology Adoption, Economic Growth Center; Yale University. Center Discussion Paper , 984.

Freund, C., and M. D. Pierola (2009): Export Entrepreneurs: Evidence from Peru, Discussion paper, World Bank Research Working Paper.

Gilbert, R. J., and D. M. G. Newbery (1982): Preemptive patenting and the persistence of monopoly, The American Economic Review, 72(3), 514-526.

Griliches, Z. (1957): Hybrid corn: An exploration in the economics of technological change, Econometrica, Journal of the Econometric Society, pp. 501-522.

Grossman, G. M., and E. Rossi-Hansberg (2010): External Economies and International Trade Redux, Quarterly Journal of Economics, 125(2), 829-858.

Harrison, A., and A. Rodriguez-Clare (2010): Trade, Foreign Investment and Industrial Policy for Developing Countries, in Handbook of Development Economics, ed. by D. Rodrik, and M. Rosenzweig, vol. 5, chap. 63, pp. 4039-4214. Elsevier.

Hausmann, R., and D. Rodrik (2003): Economic Development as Self-Discovery, Journal of Development Economics, 72, 603-633.

Helpman, E., and P. R. Krugman (1985): Market Structure and Foreign Trade: Increasing Returns, Imperfect Competition, and the International Economy. MIT Press, Cambridge, MA.

Henderson, R. (1993): Underinvestment and Incompetence as Responses to Radical Innovation: Evidence from the Photolithographic Alignment Equipment Industry, The RAND Journal of Economics, 24(2), pp. 248-270.

Hidalgo, C. A., B. Klinger, A. L. Barabasi, and R. Hausmann (2007): The product space conditions the development of nations, Science, 317(5837), 482.

Hoff, K. (1997): Bayesian learning in an infant industry model, Journal of International Economics, 43(3-4), 409-436.

Hopenhayn, H. A. (1992): Entry, Exit, and rm Dynamics in Long Run Equilibrium, Econometrica, 60(5), pp. 1127-1150.

Iacovone, L., and B. Javorcik (2010): Multi-product Exporters: Product Churning, Uncertainty and Export Discoveries, Economic Journal, forthcoming.

Jaffe, A., M. Trajtenberg, and R. Henderson (1993): Geographic localization of knowledge spillovers as evidenced by patent citations, The Quarterly Journal of Economics, 108(3),577-598.

Kehoe, T., and K. Ruhl (2009): How Important is the New Goods Margin in International Trade?, Federal Reserve Bank of Minneapolis Research Department Staff Report 324.

Khanna, T., and Y. Yafeh (2007): Business groups in emerging markets: Paragons or parasites?, Journal of Economic Literature, 45(2), 331-372.

Klepper, S. (1996): Entry, Exit, Growth, and Innovation over the Product Life Cycle, The American Economic Review, 86(3), 562-583.

Klinger, B., and D. Lederman (2004): Discovery and development: an empirical exploration of new products, World Bank working paper.

Lieberman, M. B., and D. B. Montgomery (1988): First-mover advantages, Strategic Management Journal, 9, 41-58.

Lieberman, M. B., and D. B. Montgomery(1998): First-mover (dis) advantages: Retrospective and link with the resource-based view, Strategic Management Journal, 19(12), 1111-1125.

Lopez, L. E., S. K. Kundu, and L. Ciravegna (2009): Born global or born regional Evidence from an exploratory study in the Costa Rican software industry, Journal of International Business Studies, 40(7), 1228-1238.

Lucas, R. E. (1993): Making a miracle, Econometrica, 61(2), 251-272.

Macchiavello, R. (2009): Development Uncorked: Reputation Acquisition in the New Market for Chilean Wines in the UK, BREAD Working Paper.

Magnusson, P., S. Westjohn, and D. Boggs (2009): Order-of-Entry Effects for Service Firms in Developing Markets: An Examination of Multinational Advertising Agencies, Journal of International Marketing, 17(2), 23-41.

Manski, C. (1993): Identication of endogenous social eects: The reection problem, The Review of Economic Studies, 60(3), 531-542.

Markides, C., and P. Geroski (2005): Fast second: How smart companies bypass radical innovation to enter and dominate new markets. Jossey-Bass Inc Pub.

Marshall, I. (1991): Trade Liberalization in Chile Politics and Impact on Industrial Eciency., Ph.D. thesis, Harvard University.

Mayer, T., M. Melitz, and G. Ottaviano (2010): Market size, Competition, and the Product Mix of Exporters, Mimeo, Harvard University.

Melitz, M. J. (2003): The impact of trade on intra-industry reallocations and aggregate industry productivity, Econometrica, pp. 1695-1725.

Moen, Ø., and P. Servais (2002): Born global or gradual global? Examining the export behavior of small and medium-sized enterprises, Journal of International Marketing, 10(3), 49-72.

Mostafa, R., and S. Klepper (2010): Industrial Development through Tacit Knowledge Seeding: Evidence from the Bangladesh Garment Industry, Mimeo.

Nocke, V., and S. R. Yeaple (2006): Globalization and endogenous firm scope, NBER Working Paper.

Pavcnik, N. (2002): Trade liberalization, exit, and productivity improvements: Evidence from Chilean plants, Review of Economic Studies, 69(1), 245-276.

Penrose, E. (1959): The Theory of the Growth of the Firm. Oxford University Press, USA.

Pierce, J. R., and P. K. Schott (2009): Concording US harmonized system categories over time, NBER Working Paper.

Porter, M. E. (1990): The Competitive Advantage of Nations, Harvard Business Review, 90(2), 73-93.

Porter, M. E.(1998): Clusters and the New Economics of Competition, Harvard Business Review, 76(6), 77-90.

Prusa, T. J., and J. A. J. Schmitz (1994): Can Companies Maintain Their Initial Innovative Thrust? A Study of the PC Software Industry, The Review of Economics and Statistics, 76(3), 523-540.

Rauch, J. E., and J. Watson (2003): Starting small in an unfamiliar environment, International Journal of Industrial Organization, 21(7), 1021-1042.

Romer, P. (1990): Endogenous technological change, Journal of Political Economy, 98(S5).

Rosenthal, S., and W. Strange (2006): The micro-empirics of agglomeration economies, in A companion to Urban Economics, ed. by R. Arnott, and D. McMillen, chap. 1, pp. 723. Blackwell Publishing.

Ruhl, K., and J. Willis (2009): New Exporter Dynamics, mimeo.

Schumpeter, J. A. (1934): The theory of economic development: an inquiry into profits, capital, credit, interest, and the business cycle. Transaction Publishers (1982 Edition).

Segura-Cayuela, R., and J. M. Vilarrubia (2008): Uncertainty and entry into export markets, Documentos de Trabajo Banco de España.

Seru, A. (2007): Do conglomerates stifle innovation ?, Unpublished Working Paper, University of Chicago.

Vernon, R. (1966): International Investment and International Trade in the Product Cycle, The Quarterly Journal of Economics, 80(2), pp. 190-207.