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A Signaling Model of Quality and Export: with application to dumping

  • C. Simon Fan
  • Yifan Hu
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    Extending the literature on quality and trade and supported by the empirical evidence obtained from China, this paper demonstrates that in a developing country, a firm’s export to developed countries has a potential signaling effect on domestic consumers’ perception of its product quality. The model analyzes the signaling and imitating strategies of different types of firms in their decisions to export, and characterizes the conditions for the separating, pooling, and hybrid equilibria. Next, the analysis shows that the strategic exporting of low-quality producers under informational asymmetry can result in dumping. Moreover, the model shows that the implementation of antidumping measures of foreign countries can lead to a Pareto improvement for the firms and consumers of the home country under some circumstances.

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    File URL: http://degit.sam.sdu.dk/papers/degit_11/C011_058.pdf
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    Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c011_058.

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    Length: 35 pages
    Date of creation: Jun 2006
    Date of revision:
    Handle: RePEc:deg:conpap:c011_058
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    1. Peter K. Schott, 2004. "Across-product Versus Within-product Specialization in International Trade," The Quarterly Journal of Economics, MIT Press, vol. 119(2), pages 646-677, May.
    2. Kyle Bagwell, 1990. "Optimal Export Policy for a New-Product Monopoly," Discussion Papers 898, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    3. Thomas J. Prusa, 1999. "On the spread and impact of antidumping," Departmental Working Papers 199916, Rutgers University, Department of Economics.
    4. Takao Ohkawa & Makoto Okamura & Noritsugu Nakanishi & Kazuharu Kiyono, 2005. "The Market Selects The Wrong Firms In The Long Run ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(4), pages 1143-1165, November.
    5. Shy, Oz, 2000. "Exporting as a Signal for Product Quality," Economica, London School of Economics and Political Science, vol. 67(265), pages 79-90, February.
    6. David Hummels & Peter J. Klenow, 2005. "The Variety and Quality of a Nation's Exports," American Economic Review, American Economic Association, vol. 95(3), pages 704-723, June.
    7. Brander, James & Krugman, Paul, 1983. "A 'reciprocal dumping' model of international trade," Journal of International Economics, Elsevier, vol. 15(3-4), pages 313-321, November.
    8. Rashid, Salim, 1988. "Quality in Contestable Markets: A Historical Problem?," The Quarterly Journal of Economics, MIT Press, vol. 103(1), pages 245-49, February.
    9. Kyle Bagwell & R. Staiger, 1987. "The Role of Export Subsidies When Product Quality is Unknown," Discussion Papers 758, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    10. Gunnar Niels & Adriaan ten Kate, 2004. "Anti-dumping Protection in a Liberalising Country: Mexico's Anti-dumping Policy and Practice," The World Economy, Wiley Blackwell, vol. 27(7), pages 967-983, 07.
    11. David M Kreps & Robert Wilson, 2003. "Sequential Equilibria," Levine's Working Paper Archive 618897000000000813, David K. Levine.
    12. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
    13. Aggarwal, Aradhna, 2004. "Macro Economic Determinants of Antidumping: A Comparative Analysis of Developed and Developing Countries," World Development, Elsevier, vol. 32(6), pages 1043-1057, June.
    14. Copeland, Brian R. & Kotwal, Ashok, 1996. "Product quality and the theory of comparative advantage," European Economic Review, Elsevier, vol. 40(9), pages 1745-1760, December.
    15. repec:rus:hseeco:121669 is not listed on IDEAS
    16. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2003. "Plants and Productivity in International Trade," American Economic Review, American Economic Association, vol. 93(4), pages 1268-1290, September.
    17. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-64, September.
    18. Murphy, Kevin M. & Shleifer, Andrei, 1997. "Quality and trade," Journal of Development Economics, Elsevier, vol. 53(1), pages 1-15, June.
    19. Staiger, Robert W. & Wolak, Frank A., 1992. "The effect of domestic antidumping law in the presence of foreign monopoly," Journal of International Economics, Elsevier, vol. 32(3-4), pages 265-287, May.
    20. Flam, Harry & Helpman, Elhanan, 1987. "Vertical Product Differentiation and North-South Trade," American Economic Review, American Economic Association, vol. 77(5), pages 810-22, December.
    21. Das, Satya P., 1992. "Market uncertainties and cyclical dumping," European Economic Review, Elsevier, vol. 36(1), pages 71-82, January.
    22. C. Simon Fan, 2005. "Increasing Returns, Product Quality and International Trade," Economica, London School of Economics and Political Science, vol. 72(285), pages 151-169, 02.
    23. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
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