Do export demand shocks affect the export quality of multi‐product firms? Evidence from China

Abstract

Abstract We extend the theoretical model of Antoniades (2015, Heterogeneous Firms, quality, and trade. Journal of International Economics , 95(2), 263–273) to analyze the impact of export demand shocks on the quality of multi‐product firms. Using Chinese micro‐data, we find that positive export demand shocks significantly promote the export quality of multi‐product firms, but the impact decreases as firm productivity increases. In addition to the scale effect and the competition effect, the intensified competition caused by the expansion of export demand will induce firms to skew their export sales towards the best performing products. Our findings elucidate the importance of the resource reallocation effect in the study of trade‐induced export performance.