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Improving “National Brands”: Reputation for Quality and Export Promotion Strategies

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  • Julia Cage

    () (ECON - Département d'économie - Sciences Po)

  • Dorothée Rouzet

    (ECON - Département d'économie - Sciences Po)

Abstract

This paper studies the effect of firm and country reputation on exports when buyers cannot observe quality prior to purchase. Firm-level demand is determined by expected quality, which is driven by the dynamics of consumer learning through experience and the country of origin's reputation for quality. We show that asymmetric information can result in multiple steady-state equilibria with endogenous reputation. We identify two types of steady states: a high-quality equilibrium (HQE) and a low-quality equilibrium (LQE). In a LQE, only the lowest-quality and the highest-quality firms are active; a range of relatively high-quality firms are permanently kept out of the market by the informational friction. Countries with bad quality reputation can therefore be locked into exporting low-quality, low-cost goods. Our model delivers novel insights about the dynamic impact of trade policies. First, an export subsidy increases the steady-state average quality of exports and welfare in a LQE, but decreases both quality and welfare in a HQE. Second, there is a tax/subsidy scheme based on the duration of export experience that replicates the perfect information outcome. Third, a minimum quality standard can help an economy initially in a LQE moving to a HQE.

Suggested Citation

  • Julia Cage & Dorothée Rouzet, 2015. "Improving “National Brands”: Reputation for Quality and Export Promotion Strategies," Post-Print hal-01167909, HAL.
  • Handle: RePEc:hal:journl:hal-01167909
    DOI: 10.1016/j.jinteco.2014.12.013
    Note: View the original document on HAL open archive server: https://hal-sciencespo.archives-ouvertes.fr/hal-01167909
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    Cited by:

    1. Julien MARTIN & Florian MAYNERIS, 2013. "High-End Variety Exporters Defying Distance: Micro Facts and Macroeconomic Implications," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2013027, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    2. Julia Cage, 2015. "Measuring Policy Performance: Can We Do Better than the World Bank?," Sciences Po publications info:hdl:2441/5su81hd0ma8, Sciences Po.
    3. Martin, Julien & Mayneris, Florian, 2015. "High-end variety exporters defying gravity: Micro facts and aggregate implications," Journal of International Economics, Elsevier, vol. 96(1), pages 55-71.
    4. Krautheim, Sebastian & Verdier, Thierry, 2016. "Offshoring with endogenous NGO activism," Journal of International Economics, Elsevier, vol. 101(C), pages 22-41.
    5. Sophie Hatte & Pamina Koenig, 2017. "The Geography of NGO Activism against Multinational Corporations," PSE Working Papers halshs-01518148, HAL.

    More about this item

    Keywords

    product quality; asymetric information; trade; product differenciation; export promotion; industrial policy;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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