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The made-in effect and leapfrogging: A model of leadership change for products with country-of-origin bias

Dario Diodato, Franco Malerba and Andrea Morrison ()

European Economic Review, 2018, vol. 101, issue C, 297-329

Abstract: Change in industrial leadership is often explained in terms of technological and costs advantages. However firms in emerging economies not only have to produce high quality, cost-competitive goods, but also win the resistance of consumers in the world market, who are often adverse to purchasing products from countries that yet have to build a reputation. We argue that this country-of-origin bias significantly influences the chances of leadership change. A model that aims at capturing the endogenous dynamics of demand building and leapfrogging is proposed. We show that in sectors with high monopoly power acquiring a superior technology is not sufficient for a latecomer country to become leader, unless a significant share of consumers is aware of the quality of its products. An extension of the model to multiple sectors shows that a latecomer country remains specialized into low-value undifferentiated goods, even after overtaking the technology of the leading country.

Keywords: Leapfrogging; Catch-up; Dynamics; Made-in effect (search for similar items in EconPapers)
JEL-codes: F12 O14 O30 (search for similar items in EconPapers)
Date: 2018
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