The Impact of Media on Trade: Evidence from the 2008 China Milk Contamination Scandal

42 Pages Posted: 17 Apr 2018 Last revised: 24 Feb 2019

See all articles by Tuan Anh Luong

Tuan Anh Luong

De Montfort University - Faculty of Business and Law

C. Matthew Shi

The Chinese University of Hong Kong (CUHK) - Department of Economics

Zheng Wang

De Montfort University; GEP, University of Nottingham

Date Written: January 9, 2019

Abstract

We provide the first quantified evidence on the impact of the media on consumers' evaluation of product quality and their welfare in international trade. Our estimation is based on an exploration of the changes in the global dairy product trade following the Chinese milk contamination scandal in 2008. Using a discrete choice model of consumer demand and a quadruple-difference research design, we find that, on average, a one-standard-deviation increase in media exposure to the scandal caused an at least a US$4 equivalent decrease in the perceived quality of Chinese milk. Further counterfactual simulation that takes into account the strategic responses of products suggests that consumer welfare dropped by nearly 10\% in affected markets after the scandal. Our results shed light on the role of information in international trade from a demand-side perspective.

Keywords: Information, Media, Trade, Quality, Welfare

JEL Classification: D1, F14, L66

Suggested Citation

Luong, Tuan Anh and Shi, Ce Matthew and Wang, Zheng, The Impact of Media on Trade: Evidence from the 2008 China Milk Contamination Scandal (January 9, 2019). Available at SSRN: https://ssrn.com/abstract=3164244 or http://dx.doi.org/10.2139/ssrn.3164244

Tuan Anh Luong

De Montfort University - Faculty of Business and Law ( email )

United Kingdom

Ce Matthew Shi

The Chinese University of Hong Kong (CUHK) - Department of Economics ( email )

Shatin, N.T.
Hong Kong

Zheng Wang (Contact Author)

De Montfort University ( email )

Department of Economics and Marketing
The Gateway
Leicester, LE1 9BH
United Kingdom

HOME PAGE: http://zhengwang.weebly.com/

GEP, University of Nottingham ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

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