Abstract
In this paper, we construct a simple game-theoretic model to illustrate that improvement in the legal environment can improve the quality of final products by improving the quality of intermediate products, especially in industries with higher contract intensity. Using Chinese Customs Database and Industrial Enterprise Database from 2000 to 2006, we measure the export quality at the firm-product-country level and examine the effect of the legal environment on the export quality. Our empirical study shows that the improvement in the legal environment can raise export quality, especially at firms with higher contract intensity. Further studies show that the legal environment and contract intensity affect the import decision of firms and thus have a significant impact on product quality of export firms.
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