Don't take me for a free-ride: Chinese Agricultural Geographical Indications and firms' export quality

Abstract

Geographical Indication (GI) is a rising policy in developing countries, which has been relatively neglected in the existing literature. This article studies Chinese agricultural GIs and its impact on firms’ exports. By relating newly authorized GIs with firm-product-location-destination level customs trade data according to GIs’ geographical coverage and product type, we estimate the impact of these new GIs on firm's exports. Importantly, we can distinguish GIs with and without quality supervision. For the latter we find negative impacts on export quality, which is not the case for GIs with quality supervision. We interpret this in the context of our theoretical framework as evidence for quality free-riding, where individual firms have an incentive to lower the quality of the export product. We show that this negative effect is less, the more concentrated an industry is or the more GIs there are for a particular product. Furthermore, our results suggest that the China-EU agreement on Geographical Indications may play the role of quality supervision and prevent the possibility of free-riding.