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Institution-Driven Comparative Advantage and Organizational Choice

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  • Ferguson, Shon

    (Research Institute of Industrial Economics (IFN))

  • Formai, Sara

    (Bank of Italy)

Abstract

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.

Suggested Citation

  • Ferguson, Shon & Formai, Sara, 2012. "Institution-Driven Comparative Advantage and Organizational Choice," Working Paper Series 925, Research Institute of Industrial Economics.
    • Handle: RePEc:hhs:iuiwop:0925
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    More about this item

    Keywords

    International Trade; Comparative Advantage; Contract Enforcement; Vertical Integration;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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