Abstract: By applying the micro-level trade data of China’s manufacturing enterprises during 2005-2006 and from the perspective of heterogeneity in their product quality, this paper studies the relationship between business productivity, product quality and export destination. The results indicate that there is a robust and negative correlation between business productivity, product quality and the proportion of export trade volume in low-income countries. The enterprises with higher productivity can produce products of higher quality easier via increasing R&D investment, so as to meet the preference of higher-income countries for higher-quality products. Thus they are more inclined to export their products to the higher-income countries. The coefficients of the interactive items between the per capita income of export destinations and business productivity, R&D intensity and product quality are significantly positive, which indicate that due to the strong preference of higher-income countries for higher-quality products, export to the destinations with higher per capita income can help enterprises to improve their productivity and product quality. The enterprises that can produce quality products should focus their export on the destination markets with higher income.

Key words: business productivity; product quality; trade volume ratio; export destinations