Firm Heterogeneity, Product Quality and Decisions regarding Rules of Origin

This study extends the framework of the heterogeneous firm model developed by Melitz (2003) ¹⁷ . Under the premise that productive efficiency and product quality simultaneously measure productivity, our article further explores the heterogeneous manufacturer’s choice of compliance with the rules of origin (RoOs). Our study finds that considering the different cases of productive efficiency and product quality, it will affect the willingness of exporting enterprises to choose the RoOs. Moreover, if the transnational quality-improvement technologies and consumer quality preferences are inconsistent between the two countries, the differences in the choice of compliance with RoOs will narrow down. This will result in the same attitude towards the choice of the RoOs for export enterprises with the same combination of production efficiency and product quality within the two countries.