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http://hdl.handle.net/10419/53396
  
Title:Vertical integration and investor protection in developing countries PDF Logo
Authors:Macchiavello, Rocco
Issue Date:2009
Series/Report no.:Nota di lavoro // Fondazione Eni Enrico Mattei: Institutions and markets 86.2009
Abstract:The industrial organization of developing countries is characterized by the pervasive use of subcontracting arrangements among small, financially constrained firms. This paper asks whether vertical integration relaxes those financial constraints. It shows that vertical integration trades off the benefits of joint liability against the costs of rendering the supply chain more opaque to external investors. In contrast to the commonly held view that pervasive input and capital market imperfections are conducive to vertical integration, the model predicts that the motives for vertical integration are not necessarily higher in developing countries. In particular, vertical integration is more likely to arise at intermediate levels of investor protection and better contract enforcement with suppliers reduces vertical integration only if financial markets are sufficiently developed. Evidence supporting both predictions is discussed.
Subjects:Vertical Integration
Industrial Development
Financial Constraints
Joint Liability
Trade Credit
Community-based Industries
JEL:O12
O16
D23
G30
L22
Document Type:Working Paper
Appears in Collections:FEEM Working Papers, Fondazione Eni Enrico Mattei

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