Information Frictions and Product Quality:Evidence From Foreign Investment Liberalization Policy of China's Manufacturing Industry
This paper explains the dilemma of product quality improvement in the process of foreign investment liberalization from the perspective of information frictions of the investors.Firstly,the paper constructs an investment model with the cost of information frictions and theoretically proves the negative effect of information frictions in the investors'search behavior on product quality;secondly,the paper uses product-level data of micro enterprises to empirically analyze the impact of the increase in the cost of information frictions on product quality.The results show that:(1)information frictions have significant negative impact on the quality of China's manufacturing products;(2)information frictions exert greater effect on the quality of export products of the enterprises which are engaged in foreign investment;(3)the increase in the cost of information frictions brought about by foreign investment liberalization motivates the enterprises to avoid quality competition.Therefore,reducing the investors'cost of information frictions effectively will be conducive to building the quality advantage in the process of foreign investment liberalization in China's manufacturing industry and provide important theoretical and empirical basis for breaking through the"low-end lock-in".
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