Inputs, networks and quality-upgrading: Evidence from China in India

This paper exploits China's accession to the WTO to investigate the impact of a supply shock on quality across the Indian production network. After controlling for increased import competition, including in downstream and third-country markets, and for new export opportunities, we find that a fall in input tariffs raises revenue, quality and prices, whilst lowering quality-adjusted prices and the probability of product exit - consistent with a simple model of multi-product manufacturers gaining access to higher-quality components. Upgrading persists for at least ten years; at the peak in 2010, products with a 10% higher pre-accession input tariff, and hence a larger post-accession fall in tariffs, have 5.3% higher quality. This in turn raises quality further down the supply chain, with input-output linkages amplifying the one-step effect by up to 75%. These results highlight a potential beneficial impact of the China shock in developing countries, namely supply-driven quality upgrading.

Automated summary

This paper investigates the impact of China's WTO accession on quality across the Indian production network. The results show that a fall in input tariffs leads to higher revenue, quality, and prices, while lowering quality-adjusted prices and the probability of product exit. These findings suggest that multi-product manufacturers gain access to higher-quality components and experience quality upgrading.