Thursday, 5 April 2012

Firms and exporting

From comes a column, by Leonardo Iacovone and Beata Javorcik, on Getting ready: Preparation for exporting. It asks, How do firms adapt their products before starting to export? The column argues that firms upgrade their products' quality. An interesting question is Why? Is the exporting market that much more competitive than the domestic market that higher quality is needed to compete? If so, then local customers receive an positive externality when firms move into exporting.

Using data from Mexico, Iacovone and Javorcik show that producers tend to enjoy a price premium on the domestic market relative to other companies producing the same product. This premium appears exactly one year before the product is exported, suggesting producers are getting ready to export.

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