Digitalization and Export Quality Customization: Evidence from Chinese Exporters

Abstract

This study examines the impact of digitalization on firm–product-level export quality customization (EQC). Export quality customization refers to the degree to which export product quality differs across international destinations. Analysis of firm–product-level transaction data for Chinese exporting firms from 2000 to 2013 showed that a 10 percent increase in the digital equipment-to-labor ratio corresponded to a 2 percent increase in EQC. This general trend was robust across various measures of firm–product-level EQC. An instrumental variables approach was employed to address potential endogeneity and the broad findings held across multiple subsamples. Aggregate data were used to examine the influence of sectoral robot stocks on product-level EQC during 2006–2019, with consistent results. A mechanism analysis shows that digitalization increased firm– product-level EQC mainly by enhancing firm-level operational flexibility, which enabled firms to make small, continuous production adjustments, expanding their feasible quality range and enabling process innovations, thereby facilitating firm–product-level customization practices.