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

  • Raymond Fisman


    (Columbia Business School)

  • Suman Ghosh


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

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.

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Paper provided by Department of Economics, College of Business, Florida Atlantic University in its series Working Papers with number 04024.

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Length: 11 pages
Date of creation: Feb 2004
Date of revision: Apr 2005
Publication status: Published in Southern Economic Journal, Vol. 72, No. 2
Handle: RePEc:fal:wpaper:04024
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