Product quality and export probability: Evidence from a large developing country

Abstract

This study investigates the quality of Brazil’s exports to a group of countries and analyzes its implications. Using a micro-based index, we estimated a set of 15,114,700 observations, comprising 5230 products classified at the harmonized system 6-digit level and 170 countries from 2002 to 2018. We estimated quality using two-stage least squares and an auxiliary regression. We also calculated potential quality indices as a proxy for cutoff conditions, considering varieties outside the market. This variable may represent a product's minimum quality to export to a new destination. These estimations can help policymakers, or even exporters, to identify which varieties have more chances to penetrate new markets, considering the country’s characteristics. Based on these results, we regressed a probit panel model. The coefficients indicate higher-quality exports having greater chances of reaching new markets and export survival, while the cutoff conditions reduce such probabilities. Moreover, the results show robustness between homogenous and differentiated products.