Discovery and Development: An Empirical Exploration of “New” Products

Abstract

The authors use disaggregated export data to explore the relationship between economic discovery and economic development. They find that discoveries, or episodes, when countries begin exporting a new product are not limited to so-called"dynamic"industries. Rather, they also occur in traditional sectors such as agriculture. In addition, the data suggest discovery is a component of the stages of productive diversification that occur with development, following a consistent pattern-discovery activity peaks at the lower-middle income level and then declines. Based on this pattern, the authors show that discovery in the 1990s occurred with a higher than expected frequency in Eastern Europe and Central Asia, and lower than expected frequency in Sub-Saharan Africa. Discovery is not found to be a product of structural transformation based on changing factor endowments across income levels. Beyond export growth, population, and development, there are no significant and positive relationships between the expected drivers of entrepreneurship and the frequency of discovery. Combined with the finding that higher absorptive capacity and lower barriers to entry are associated with a reduction in discovery, this suggests that market failures arising from imitation and free-riding may be inhibiting the emergence of new export products in developing countries.