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Vertical Integration, Supplier Behavior, and Quality Upgrading among Exporters

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  • Christopher Hansman
  • Jonas Hjort
  • Gianmarco León
  • Matthieu Teachout

Abstract

We study the relationship between exporters’ organizational structure and output quality. If only input quantity is observable, theory predicts that vertical integration may be necessary to incentivize suppliers to increase input quality. Using data on suppliers’ behavior, supplier ownership, supply transactions, and manufacturers’ output by quality grade and exports from the Peruvian fishmeal industry, we show the following. After integrating with the plant being supplied and losing access to alternative pay-per-kilo buyers, suppliers take more quality-increasing and less quantity-increasing actions. Integration consequently causally increases output quality, and manufacturers integrate suppliers when facing high relative demand for high quality grades.

Suggested Citation

  • Christopher Hansman & Jonas Hjort & Gianmarco León & Matthieu Teachout, 2017. "Vertical Integration, Supplier Behavior, and Quality Upgrading among Exporters," Working Papers 961, Barcelona Graduate School of Economics.
  • Handle: RePEc:bge:wpaper:961
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    Keywords

    vertical integration; quality upgrading; trade; Peru;

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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