Export industry policy and reputational comparative advantage

Country-of-origin reputations are endogenized in this paper and it is shown that otherwise identical countries can be correctly perceived as differing in their percentage of high-quality producers. These self-fulfilling reputations determine not only the average quality of a country's exports but also the type of products in which a country specializes. Hence, the pattern of international trade can be determined by this 'reputational comparative advantage'. An inferior country-of-origin reputation leads to lower national welfare, therefore, several trade and industrial policies that can improve country-of-origin reputation are examined. (C) 2002 Elsevier Science B.V. All rights reserved.