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Do Institutions Determine Economic Geography? Evidence from the Concentration of Foreign Suppliers

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  • Fariha Kamal
  • Asha Sundaram

Abstract

Do institutions shape the geographic concentration of industrial activity? We explore this question in an international trade setting by examining the relationship between country-level institutions and patterns of spatial concentration of global sourcing. A priori, weak institutions could be associated with either dispersed or concentrated sourcing. We exploit location and transaction data on imports by U.S. firms and adapt the Ellison and Glaeser (1997) index to construct a product-country-specific measure of supplier concentration for U.S. importers. Results show that U.S. importers source in a more spatially concentrated manner from countries with weaker contract enforcement. We find support for the idea that, where formal contract enforcement is weak, local supplier networks compensate by sharing information to facilitate matching and transactions.

Suggested Citation

  • Fariha Kamal & Asha Sundaram, 2019. "Do Institutions Determine Economic Geography? Evidence from the Concentration of Foreign Suppliers," Working Papers 19-05, Center for Economic Studies, U.S. Census Bureau.
    • Handle: RePEc:cen:wpaper:19-05
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    More about this item

    Keywords

    buyer-seller match; global sourcing; contract enforcement; institutions; spillovers; trade;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • F6 - International Economics - - Economic Impacts of Globalization
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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