Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/81440
Authors: 
Ferguson, Shon
Formai, Sara
Year of Publication: 
2011
Series/Report no.: 
IFN Working Paper 879
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 institutions determine international trade patterns. We find that vertical integration lessens the impact of a country's ability to enforce contracts on the comparative advantage of complex goods. We also find that countries with good financial institutions export disproportionately more in sectors that produce complex goods and that have a high propensity for vertical integration. In doing so we use a new outcome-based measure of vertical integration propensity and we employ several empirical strategies: cross section, panel and event study analysis. Our results confirm the role of institutions 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.
Subjects: 
International Trade
Comparative Advantage
Contract Enforcement
Financial Institutions
Vertical Integration
JEL: 
D23
F10
F14
G20
G34
L22
L23
Document Type: 
Working Paper

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