Information asymmetries as trade barriers: ISO 9000 increases international commerce

Abstract

Spatial, cultural, and linguistic barriers create information asymmetries between buyers and sellers that impede international trade. The International Organization for Standardization's ISO 9000 program is designed to reduce these information asymmetries by providing assurance about the product quality of firms that receive its certification. Based on analyses of a panel of 140 countries from 1994 to 2004, we find that ISO 9000 certification levels are associated with increases in countries' bilateral exports, particularly for developing countries' exports, which may be due to their more severe quality assurance challenges. © 2009 by the Association for Public Policy Analysis and Management.

Quality management and international trade: institutionalization of quality standards and performance outcomes in China

“…Before the establishment of the ISO 9000, information asymmetry appeared to be an unrecognized barrier within international trade agreements (Potoski and Prakash 2009). In fact, lack of certainty in the credibility of quality impedes international trade and thus should not be an overlooked issue (Grossman 1981;Lavissiere and Rodrigue 2017;Munim and Schramm 2018).…”

“…More importantly, buyers often associate poor quality of exports with these countries. As a result, firms that are actually capable of producing high quality products find themselves in a weak position when bargaining for a good price (Potoski and Prakash 2009). Quality management standards thereby can be an effective way to ease this information asymmetry issue and to promote the exports of less developed countries (Munim and Schramm 2018;Potoski and Prakash 2009).…”

“…Firms need to provide training to staff members and designate a quality representative to coordinate the implementation of quality management systems. This extensive requirement allows ISO 9000 to be a credible agent to improve a firm's internal quality systems and procedures (Potoski and Prakash 2009).…”

“…The International Organization for Standardization's main objective is to provide a set of harmonized worldwide technical standards in order to facilitate international exchanges and promote global trade (Clougherty and Grajek 2014). In the early years, international standards like ISO 9000 had proven significant in acting as the determinants of international trade, indeed, more than that of national standards (Clougherty and Grajek 2014;Potoski and Prakash 2009). Specifically, the ISO 9000 Quality Assurance Standards were published by the Technical Committee (TC176) of the International Organization for Standardization in 1979 to provide universal quality management standards and to rectify information asymmetry issues in international trade.…”

“…Specifically, the ISO 9000 Quality Assurance Standards were published by the Technical Committee (TC176) of the International Organization for Standardization in 1979 to provide universal quality management standards and to rectify information asymmetry issues in international trade. It has been proven that ISO 9000 can act as an effective driver to increase trade (Potoski and Prakash 2009;Terlaak and King 2006). However, in recent years many experts find that the effectiveness of quality management standards are deteriorating due to a process of institutionalization.…”