The rate of export discoveries goes down when first movers expect fewer benefits from their inventions because of imitation threats posed by competitors, according to a new working paper by Bailey Klinger and Daniel Lederman. Indeed, if prices for exports are determined only by global demand, imitators can either drive down those prices or drive up production costs. That, the authors argue, can lower the chances of product diversification in the export market within a particular country or industry. But that market failure might be partly compensated when export discoveries in one industry lead to findings in another. Because export diversification and new export discoveries are linked to economic growth, the authors recommend that governments not use entry barriers to protect innovators from the threat of imitation. Instead, they should consider interventions that directly stimulate export discoveries.
Full paper by Klinger and Lederman here. 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.
