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Intermediate Goods, Institutions and Output per Worker

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  • Kevin Cowan
  • Alejandro Neut

Abstract

This paper tests a specific channel through which institutions affect output per capita: the role of institutions in firm-level division of production. We argue that weaker institutions increase transaction costs, including those incurred by a firm when dealing with suppliers of intermediate goods. Firms respond to these higher costs by substituting intermediate goods produced within the firm for those externally supplied, which in turn discourages specialization and consequently decreases productivity. To test this channel, we rely on differences across sectors in their capacity to substitute internal goods for intermediate goods. We first create an index that measures the 'complexity' of a sector's intermediate structure using data from the United States. Using this index, we find that industries with a more complex intermediate goods structure suffer a relatively larger loss of productivity in countries with poorer institutions. l II) could be helpful on this task.

Suggested Citation

  • Kevin Cowan & Alejandro Neut, 2007. "Intermediate Goods, Institutions and Output per Worker," Working Papers Central Bank of Chile 420, Central Bank of Chile.
  • Handle: RePEc:chb:bcchwp:420
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    Cited by:

    1. Iacovone, Leonardo & Ferro, Esteban & Pereira-López, Mariana & Zavacka, Veronika, 2019. "Banking crises and exports: Lessons from the past," Journal of Development Economics, Elsevier, vol. 138(C), pages 192-204.
    2. David Hémous & Morten Olsen, 2018. "Long-term Relationships: Static Gains and Dynamic Inefficiencies," Journal of the European Economic Association, European Economic Association, vol. 16(2), pages 383-435.
    3. Ana Fernandes, 2012. "Institutions and the Sectoral Organization of Production," Diskussionsschriften dp1207, Universitaet Bern, Departement Volkswirtschaft.
    4. Chakraborty, Pavel, 2016. "Judicial quality and regional firm performance: The case of Indian states," Journal of Comparative Economics, Elsevier, vol. 44(4), pages 902-918.
    5. Marcella Nicolini, 2007. "Institutions and Offshoring Decision," CESifo Working Paper Series 2074, CESifo.
    6. Julian di Giovanni & Andrei A. Levchenko, 2012. "The Risk Content of Exports: A Portfolio View of International Trade," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 8(1), pages 97-151.
    7. Andrei A. Levchenko & Logan Lewis & Linda L. Tesar, 2009. "The Collapse of International Trade During the 2008-2009 Crisis: In Search of the Smoking Gun," Working Papers 592, Research Seminar in International Economics, University of Michigan.
    8. Beutler, Toni & Grobéty, Mathieu, 2019. "The collateral channel under imperfect debt enforcement," European Economic Review, Elsevier, vol. 111(C), pages 336-359.
    9. Fałkowski, Jan & Curzi, Daniele & Olper, Alessandro, 2016. "Contract (in)completeness, product quality and trade – evidence from the food industry," 2016 Fifth AIEAA Congress, June 16-17, 2016, Bologna, Italy 242321, Italian Association of Agricultural and Applied Economics (AIEAA).
    10. Feifei Wu & Xinyu Yan, 2018. "Institutional Quality and Sustainable Development of Industries’ Exports: Evidence from China," Sustainability, MDPI, Open Access Journal, vol. 10(11), pages 1-22, November.
    11. Das, Joy & Tanger, Shaun & Fannin, J. Matthew & Kennedy, P. Lynn, 2020. "Institutional Determinant of Market Concentration and Trade in a General Equilibrium Setup," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304458, Agricultural and Applied Economics Association.
    12. Ma, Yue & Qu, Baozhi & Zhang, Yifan, 2010. "Judicial quality, contract intensity and trade: Firm-level evidence from developing and transition countries," Journal of Comparative Economics, Elsevier, vol. 38(2), pages 146-159, June.
    13. Raddatz, Claudio, 2006. "Liquidity needs and vulnerability to financial underdevelopment," Journal of Financial Economics, Elsevier, vol. 80(3), pages 677-722, June.
    14. Chauvet, Lisa & Ehrhart, Hélène, 2018. "Aid and growth: evidence from firm-level data," Journal of Development Economics, Elsevier, vol. 135(C), pages 461-477.
    15. Ahsan, Reshad N., 2013. "Input tariffs, speed of contract enforcement, and the productivity of firms in India," Journal of International Economics, Elsevier, vol. 90(1), pages 181-192.
    16. Krishna, Pravin & Levchenko, Andrei A., 2013. "Comparative advantage, complexity, and volatility," Journal of Economic Behavior & Organization, Elsevier, vol. 94(C), pages 314-329.
    17. Ronald B. Davies & Rodolphe Desbordes, 2018. "Export Processing Zones and the Composition of Greenfield FDI," Working Papers 201807, School of Economics, University College Dublin.
    18. Michael Alexeev & Andrey Chernyavskiy, 2019. "The impact of institutional quality on manufacturing sectors in Russia: panel data analysis," CAEPR Working Papers 2019-004, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.
    19. Julian di Giovanni & Andrei A. Levchenko, 2006. "Openness, Volatility and the Risk Content of Exports," 2006 Meeting Papers 86, Society for Economic Dynamics.
    20. Kuncic, Aljaz, 2012. "Institutional determinants of bilateral trade: Taking another look," Kiel Advanced Studies Working Papers 462, Kiel Institute for the World Economy (IfW).

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