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Small Industries and Institutional Framework: A Transaction Costs Approach


  • Ramamurthy, Bhargavi

    (Department of Economics)

  • Ronnås, Per

    (Department of Economics)


There has been a revival of interest in small industries and their linkages with a nation's institutional arrangements, among both academicians and policy makers. Extending the definition of institutions to include formal and informal rules, this paper attempts to identify these linkages using the technique of transaction costs. Applying this to the economic environment of small firms in Taiwan and India it is found that transaction costs have been lower among Taiwanese small firms when compared to their Indian counterparts owing to certain institutional factors which have shaped its developmental history, the most important ones being the indirect intervention of the government, strong vertical linkages and a high level of human capital endowment. It is argued that the protectionist policy and other institutional factors in India perpetuated an institutional rigidity that worked to raise transaction costs for the small firm.

Suggested Citation

  • Ramamurthy, Bhargavi & Ronnås, Per, 1995. "Small Industries and Institutional Framework: A Transaction Costs Approach," SSE/EFI Working Paper Series in Economics and Finance 83, Stockholm School of Economics.
  • Handle: RePEc:hhs:hastef:0083

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    More about this item


    Small industries; institutions; transaction costs; Taiwan; India;

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries


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