On the market failure of “missing pioneers”

• Main Authors: WEI, Shang-Jin, WEI, Ziru, XU, Jianhuan
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2021
• Subjects: Trade; Market Failure; Missing Pioneers; Asian Studies; Growth and Development
• Online Access: https://ink.library.smu.edu.sg/soe_research/2484; https://ink.library.smu.edu.sg/context/soe_research/article/3483/viewcontent/Market_failure_missing_failure_2021_av.pdf
• Institution: Singapore Management University

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.