between incentives for invention and early diffusion. As opposed to this standard dilemma, however, when the “invention” in question is the “discovery” of a new activity’s production costs in a particular country, it is not possible to resolve this trade-off through the patent system because such knowledge simply cannot be patented. As a result, HR assert that developing countries suffer below-optimal “discovery activity,” as the potential monopoly rents of pioneers—which would induce them to invest in those activities—is rapidly dissipated by the early entry of imitators. The HR framework is in principle suitable for analyzing emerging export activity in differentiated products from a developing country (like Argentina) to developed countries. Since Argentina’s exports have been historically concentrated on agricultural and industrial commodities, this activity is likely to be subject to uncertainty about production costs. 5 To the extent that the nature and outcome of the risky investments that a pioneer makes to discover all the implications of an export venture are observable to other firms, which can then imitate, the pioneer’s private returns will be lower than the social returns he generates. As in the HR framework, such a market failure will induce below-optimal investment by pioneers. In this section we present a framework that adapts elements from the HR model. Based on the case-study findings, we provide more specific content to the conceptual apparatus of that framework. We first argue that generating sustainable export growth requires a firm to adopt a set of business practices that is substantially different from the set of practices that are necessary to compete successfully in the domestic market. We distinguish between the two by calling them, respectively, the “export business model” and the “domestic business model.” Then, we redefine the terms “discovery,” “pioneer,” and “diffusion,” which are the central concepts in HR, to be consistent with the theoretical framework we propose.
5
We argue later that exporting, as a new activity, is subject to additional layers of uncertainty that go largely beyond uncertainty about production costs.
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