Entry into Export Markets and Product Quality

• Published in: World economy Vol. 34; no. 8; pp. 1237 - 1262
• Main Authors: Álvarez, Roberto, Fuentes, J. Rodrigo
• Format: Journal Article
• Language: English
• Published: Oxford, UK Blackwell Publishing Ltd 01-08-2011
• Subjects: Bias; Chile; Chileans; Correlation analysis; Differentiation; Estimation; Export composition; Export performance; Export volume; Exporters; Exports; Exports and Imports; International trade; Market entry; Market structure; Markets; Price formation; Prices; Product differentiation; Product quality; Quality; Studies; Values; Chile
• ISSN: 0378-5920; 1467-9701
• DOI: 10.1111/j.1467-9701.2011.01377.x

Using a rich data set of Chilean exporters, we analyse several issues regarding the relationship between entry into export markets and product quality. We find that every year, a large number of new exporting relationships are initiated, but the survival rate of these entries is very low and declines over time. Using unit values as a proxy for product quality, our estimations show that entry is generally associated with higher product quality. This higher quality, however, tends to reduce over time and eventually disappears three years after entry. In addition, our evidence suggests that the positive relationship between entry and quality is more prevalent in new exporters. To better identify this effect, we explore whether there are systematic differences across sectors. As expected, for sectors in which quality differentiation may be important, our findings reveal that reference‐price and differentiated products show a higher price in the year of entry and a longer convergence to incumbent prices. These results hold after controlling for potential sample selection bias.