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PRODUCT QUALITY, MARKET SIGNALING AND THE DEVELOPMENT OF EAST WEST TRADE
Author(s) -
MURRELL PETER
Publication year - 1982
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1982.tb00368.x
Subject(s) - quality (philosophy) , reputation , order (exchange) , position (finance) , product (mathematics) , economics , industrial organization , international economics , international trade , microeconomics , mathematics , finance , social science , philosophy , geometry , epistemology , sociology
Countertrade, a contractual form in which there is a two‐way flow of goods, occupies a position of significance in East‐West trade. In this paper, it is shown that countertrade can solve problems which arise when the quality of Eastern European products is unknown. Using the market signaling literature, a theory is formulated in order to make predictions concerning the use of countertrade. Countertrade will be particularly useful when quality information is important but cannot be obtained directly and when a country has a poor quality reputation. These predictions are supported by empirical tests.