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Exporting as a Signal for Product Quality

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  • Oz Shy

Abstract

I develop a dynamic asymmetric information model where a domestic producer is unable to commit to producing a high‐quality product. The domestic producer then can signal to consumers that it is producing a high‐quality product by developing the infrastructure needed to start exporting the product. This signalling may take place even if selling internationally is less profitable than selling high quality only at home in the absence of credibility problems. Thus, this paper provides another explanation for the decision to start exporting. I then analyse how and which kind of export subsidies alter a firm's incentive to sell a high‐quality product in different markets.

Suggested Citation

  • Oz Shy, 2000. "Exporting as a Signal for Product Quality," Economica, London School of Economics and Political Science, vol. 67(265), pages 79-90, February.
    • Handle: RePEc:bla:econom:v:67:y:2000:i:265:p:79-90
    DOI: 10.1111/1468-0335.00196
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    Cited by:

    1. Viaene, Jean-Marie & Zhao, Laixun, 2015. "Inspection, testing errors and trade in tainted products," Journal of the Japanese and International Economies, Elsevier, vol. 35(C), pages 99-116.
    2. Shin, Inyong & Kim, Hyunho, 2010. "The effect of subsidy policies on the product quality improvement," Economic Modelling, Elsevier, vol. 27(3), pages 687-696, May.
    3. C. Simon Fan & Yifan Hu, 2006. "A Signaling Model of Quality and Export: with application to dumping," DEGIT Conference Papers c011_058, DEGIT, Dynamics, Economic Growth, and International Trade.
    4. Jean Marie Viaene & Laixun Zhao, 2009. "Tainted Food, Low-Quality Products and Trade," Discussion Paper Series 245, Research Institute for Economics & Business Administration, Kobe University.
    5. Jaime DE MELO & Marcelo OLARREAGA, 2017. "Trade Related Institutions and Development," Working Papers P199, FERDI.
    6. Maria Luisa Mancusi & Andrea Vezzulli & Serena Frazzoni & Zeno Rotondi & Maurizio Sobrero, 2018. "Export and Innovation in Small and Medium Enterprises: The Role of Concentrated Bank Borrowing," Economica, London School of Economics and Political Science, vol. 85(337), pages 177-204, January.
    7. AOUINI, Syrine & Gil, Jose M., 2017. "Innovation and Brand Effects on the Consumers’ Demand for Fresh Milk in Spain," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258131, Agricultural and Applied Economics Association.

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