On the market failure of “missing pioneers”

An influential hypothesis states that export pioneers are too few relative to social optimum because the first exporter’s action creates an informational public good for all subsequent exporters. The hypothesis has been invoked to justify certain types of government interventions. We note, however,...

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Bibliographic Details
Published in:Journal of development economics 2021-09, Vol.152, p.102705, Article 102705
Main Authors: Wei, Shang-Jin, Wei, Ziru, Xu, Jianhuan
Format: Article
Language:English
Subjects:
Discovery cost
Economic development
Market failure
Missing pioneer
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Summary:An influential hypothesis states that export pioneers are too few relative to social optimum because the first exporter’s action creates an informational public good for all subsequent exporters. The hypothesis has been invoked to justify certain types of government interventions. We note, however, that such market failure requires two inequalities to hold simultaneously: the discovery cost is neither too low nor too high. Neither has to hold in the data. We propose a structural estimation framework to evaluate the hypothesis, and estimate the parameters based on the customs data of Chinese electronics exports. Our key finding is that “missing pioneers” is a low-probability event for large countries, but can be a serious problem for small economies.
ISSN:0304-3878
1872-6089
DOI:10.1016/j.jdeveco.2021.102705