Abstract
AbstractThis paper explores the links between policy support, export destinations and product quality. Depending on the export industry and target destination (policy support, income level), the theories suggest a competing relationship between policy support and high‐income exporting on quality upgrading. Consistent with the notion that policy support only matters when exporting to low‐income destinations, empirical results show that policy support improves exporters’ product quality and mitigates the inefficiency of the quality valuation mechanism when exporting to low‐income countries, but reduces product quality by distorting the quality valuation mechanism when exporting to high‐income countries. These results are robust within different measures of policy support and product quality. Heterogeneity analyses show that the impact of policy support and its relationship with high‐income exporting only held for firms with high extensive margins, while foreign ownership and export duration can mitigate the quality reduction impact caused by policy support for high‐income exporting.
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