This paper uses new customs data on the universe of Chinese trading firms to infer the relative importance of production efficiency and product quality for firms’ export success. We establish five novel stylized facts. First, firms charging higher export prices earn larger revenues within each destination, have bigger worldwide sales, and export to more markets. Second, firms that pay higher import prices offer higher export prices, have bigger worldwide sales, and export to more markets. Third, firms set higher prices in larger, richer and more distant markets. Fourth, there is a positive correlation between export price and revenue across destinations within a firm. Finally, firms with larger worldwide export revenues and more export markets pay a wider range of import prices and offer a broader menu of export prices. These results suggest that more successful exporters use higher-quality inputs to produce higher-quality goods (stylized facts 1 and 2) and that firms vary both product quality and mark-ups across destinations in response to market toughness and consumer income (stylized facts 3, 4 and 5).
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This paper was revised on December 15, 2009
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