Quid Pro Quo, Knowledge Spillovers, and Industrial Quality Upgrading: Evidence from the Chinese Auto Industry

Bai, Jie; Barwick, Panle Jia; Cao, Shengmao; Li, Shanjun

doi:10.1257/aer.20221501

Abstract

This paper studies the impact of quid pro quo (technology for market access) in facilitating knowledge spillovers and quality upgrading in the Chinese automobile industry. The identification strategy exploits within-product quality variation across a rich set of quality dimensions. We find that affiliated domestic automakers adopt more similar quality strengths of their joint venture partners, consistent with knowledge spillovers. Additional analysis suggests worker flows and supplier networks mediate knowledge spillovers. Knowledge spillovers due to ownership affiliation under quid pro quo contributed 8.3% of the quality improvement experienced by affiliated domestic models from 2001 to 2014, relative to nonaffiliated domestic models.

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