Interlinked Credit Relational Contracting and the Spread of Rural-Based Manufacturing : The Case of Garment and Metalcraft Industries in the Philippines
AbstractSubcontracting arrangements based on relational contracting between urban traders and rural-based manufacturers provide an important means for spreading manufacturing in rural areas. Within these arrangements, the payment of advances is a form of credit interlinking that addresses the isolation of rural-based enterprises from the formal finance sector. This viewpoint motivates specification of a testable hypothesis: advance payments are greater the more remote a rural-based subcontractor is from the urban center. The paper shows that such a hypothesis can be derived from a simple principal-agent model of the subcontracting relation. Moreover, the hypothesis is empirically confirmed by multivariate analysis of data from a case study of garment and metalcraft industries in the Philippines. The finding supports the view that subcontracting arrangements may be an organizational form appropriate to rural industrialization.
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Bibliographic InfoArticle provided by University of the Philippines School of Economics and Philippine Economic Society in its journal Philippine Review of Economics.
Volume (Year): 39 (2002)
Issue (Month): 1 (June)
Interlinked contracts; rural industrialization;
Find related papers by JEL classification:
- G20 - Financial Economics - - Financial Institutions and Services - - - General
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- O19 - Economic Development, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
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