As part of the Brown Bag Lunch series, the International Economics Department at the Graduate Institute is pleased to invite you to a public talk given by Felipe Bahamondes.
Pioneers and Followers in International Trade: Who Benefit from Trade Liberalization?
By Felipe Eduardo Bahamondes and Mauricio Pinzón-Latorre
Abstract: This paper investigates the micro-structure of international markets in the context of pioneer and follower competition. We use Colombian custom records to identify varieties imported for the first time and firms involved in their trade. By dividing exporters into pioneers and followers, first, we find a pattern of spillovers from the former to the latter. Namely, an increment of 10% in the pioneers' initial exported value raises the probability of being followed by other exporters by 16%. Second, we also find that pioneers export 70% more than followers. Third, the evidence shows that exporters' performance, either in terms of exported values or prices, is related to the size of their importer partners. That is, an increase of 10% in the importers' size raises values and prices by 0.5% and 0.15%, respectively. Fourth, pioneers trade with larger importer partners. On average, importers trading with pioneers are 50% larger than importers dealing with followers. From these empirical results, we propose a model that highlights both the advantage of being a pioneer and the critical role of exporting through more productive importer partners. In a double marginalization setup, we include two mechanisms of searching. First, the importer searches for consumers by implementing marketing campaigns, whose costs depend on its productivity and the number of consumers already reached by other importers. Second, exporters search for importers, paying a cost related to a given effort of searching. The higher the effort, the higher is the probability of finding a more productive importer. As an implication of the model, a reduction in trade barriers boosts the search effort of incumbent exporters, but it has ambiguous effects on entrant exporters.