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Price, Product Quality, And Exporter Dynamics: Evidence From China

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  • Joel Rodrigue
  • Yong Tan

Abstract

This article develops a model of heterogeneous firms that endogenously choose prices and product quality to build demand in export markets. New exporters optimally charge relatively low prices and produce low‐quality goods upon entry. Product quality, prices, and sales increase as demand grows. We structurally estimate model parameters using Chinese customs data. The estimated incentive to build future demand reduces average export prices by 0.7% and increases export sales by 4% upon entry. Endogenous demand accumulation causes estimated export prices, product quality, and sales to grow by 2.2%, 12%, and 79%, respectively, over the following five years.

Suggested Citation

  • Joel Rodrigue & Yong Tan, 2019. "Price, Product Quality, And Exporter Dynamics: Evidence From China," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 60(4), pages 1911-1955, November.
    • Handle: RePEc:wly:iecrev:v:60:y:2019:i:4:p:1911-1955
    DOI: 10.1111/iere.12410
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    Cited by:

    1. Rabah Arezki & Ana Margarida Fernandes & Federico Merchán & Ha Nguyen & Tristan Reed, 2021. "Natural Resource Dependence and Monopolized Imports," CESifo Working Paper Series 9254, CESifo.
    2. Jerónimo Carballo & Alejandro Graziano & Georg Schaur & Christian Volpe Martincus, 2021. "Import Processing and Trade Costs," CESifo Working Paper Series 9170, CESifo.
    3. Hu, Cui & Parsley, David & Tan, Yong, 2021. "Exchange rate induced export quality upgrading: A firm-level perspective," Economic Modelling, Elsevier, vol. 98(C), pages 336-348.
    4. Vincenzo Merella & Josef Tauser, 2022. "Import Quality in Former Centrally Planned EU Countries," Carlo Alberto Notebooks 684 JEL Classification: F, Collegio Carlo Alberto.
    5. Andrea Ciani, 2021. "Income inequality and the quality of imports," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 157(2), pages 375-416, May.
    6. Yong Tan & Chen Carol Zhao, 2020. "Firms’ heterogeneity, demand accumulating, and exchange rate pass‐through," Southern Economic Journal, John Wiley & Sons, vol. 87(2), pages 700-731, October.
    7. Schmidt, Julia & Steingress, Walter, 2022. "No double standards: Quantifying the impact of standard harmonization on trade," Journal of International Economics, Elsevier, vol. 137(C).
    8. Rigo, Davide, 2024. "The role of firm-to-firm relationships in exporter dynamics," LSE Research Online Documents on Economics 121135, London School of Economics and Political Science, LSE Library.
    9. Davide Rigo, 2024. "The role of firm‐to‐firm relationships in exporter dynamics," Economica, London School of Economics and Political Science, vol. 91(362), pages 569-587, April.
    10. Zeeshan Ullah & Ahmad Arslan & Vesa Puhakka, 2021. "Corporate social responsibility strategy, sustainable product attributes, and export performance," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 28(6), pages 1840-1853, November.
    11. He, Dongwei & Wang, Yunfei & You, Kai, 2023. "Market entry and the dynamics of export product quality: Evidence from Chinese manufacturing firms," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 692-706.

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