Market entry and the dynamics of export product quality: Evidence from Chinese manufacturing firms

Abstract

The quality of export products is essential for understanding the dynamics of international trade. This study deploys a theoretical framework to illustrate that the optimal policy for a new entrant firm exporting to the United States from China is to set the product quality as relatively low initially and improve it over time as the product gains recognition from U.S. consumers. Using data on transaction-level Chinese exports to the U.S. data between 2000 and 2013, we quantify the export product quality and its trend. Empirical results are consistent with model implications. Our findings are robust to alternative specifications and extensions.