Trust and quality uncertainty in global value chains

The globalization of production and trade has significantly increased quality uncertainty faced by the consumers. This study uses a large firm-product-country level panel data involving 2922 multinational enterprise affiliates producing in China and exporting to 25 countries to investigate the role of trust in quality evaluation of foreign products. Our methods account for quality uncertainty interacted with trust, as well as imported intermediate inputs. The data indicate that consumers are willing to pay a price premium for their trust regarding the multinational enterprise headquarter countries. This “trust premium” is more prominent for the products with higher quality uncertainty. The data further indicate that the consumers offer high price for the products using imported intermediate inputs sourced from high-trust countries. Overall, our analysis highlights that trust plays an important role in the consumers’ quality evaluation in global value chains.