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Dynamics of Firm–Supplier Relationships in a Less Developed Economy: Evidence from African Manufacturing Firms

Author

Listed:
  • Raymond Fisman

    (Columbia Business School)

  • Suman Ghosh

    (Department of Economics, College of Business, Florida Atlantic University)

Abstract

In this paper, we study supplier–firm interactions to explain firms' outsourcing relationships. We show that in an imperfect information setup a firm learns about the quality of its suppliers through repeated interaction. As the firm determines the suppliers' quality with greater precision, it gives a greater proportion of its contracts to these “better” suppliers. We report evidence from African manufacturing firms that is consistent with our hypothesis: both frequency and volume of transactions increase with the length of a firm's relationship with its supplier. These effects are stronger in poor contracting environments.

Suggested Citation

  • Raymond Fisman & Suman Ghosh, 2004. "Dynamics of Firm–Supplier Relationships in a Less Developed Economy: Evidence from African Manufacturing Firms," Working Papers 04024, Department of Economics, College of Business, Florida Atlantic University, revised Apr 2005.
    • Handle: RePEc:fal:wpaper:04024
    as

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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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