Inputs, networks and quality-upgrading : Evidence from China in India

This paper exploits China’s accession to the WTO to investigate the propagation of a supply shock across the Indian production network. Consistent with a model of multi-product manufacturers gaining access to higher-quality components, a fall in input tariffs raises revenue, quality and prices whilst lowering quality-adjusted prices and the probability of product exit. Upgrading persists for at least ten years; at the peak in 2010, products with a 10% higher pre-accession input tariff, and hence a larger post-accession fall in tariffs, have 5.3% higher quality. This in turn raises quality further down the supply chain, with input-output linkages amplifying the one-step effect by up to 75%. These results highlight a potential beneficial impact of the ‘China shock’ in developing countries, namely supply-driven quality upgrading