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

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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.