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

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: 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