Social trust and export quality: Empirical evidence from China

Abstract

Prior research indicates that formal institutions play a crucial role in affecting the quality of exports. However, the impact of informal institutions, particularly social trust, has received insufficient consideration. This study examines the influence of social trust on the quality of export goods. By employing firm-product level data from Chinese enterprises between 2000 and 2013, we illustrate that social trust plays a crucial role in enhancing export quality. The 2SLS regressions validate the anticipated causality, and the result is robust to other quality and trust measures. We delineate three mechanisms: delegation, the introduction of new products, and the acquisition of more debt financing. Our heterogeneity study shows that social trust promotes quality improvement in processing trade firms, foreign-owned firms, low-technological-intensive firms, and firms in eastern China. We also find that social trust and formal institutions work together to improve export quality.