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Institution-Driven Comparative Advantage and Organizational Choice

  • Ferguson, Shon

    ()

    (Research Institute of Industrial Economics (IFN))

  • Formai, Sara

    (Bank of Italy)

The theory of the firm suggests that firms can respond to poor contract enforcement by vertically integrating their production process. The purpose of this paper is to examine whether firms’ integration opportunities affect the way contract enforcement institutions determine international trade patterns. We find that the benefits of judicial quality for the exports of contract-intense goods are more muted in industries that have a greater propensity towards vertical integration arrangements with input suppliers. We show that our results are not driven by primitive industry characteristics. Our results confirm the role of judicial quality as source of comparative advantage and suggest that this depends not only on the technological characteristics of the goods produced but also on the way firms are able to organize the production process.

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Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 925.

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Length: 23 pages
Date of creation: 11 Sep 2012
Date of revision:
Handle: RePEc:hhs:iuiwop:0925
Contact details of provider: Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
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