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Vertical integration, missing middle and investor protection in developing countries
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Macchiavello, Rocco (2007) Vertical integration, missing middle and investor protection in developing countries. In: Northeast Universities Development Consortium Conference, Cambridge, MA, 26-27 Oct 2007
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Official URL: http://www.cid.harvard.edu/neudc07/docs/neudc07_s5...
Abstract
This paper is motivated by the following features in the industrial organization of developing countries: i) subcontracting arrangements among small firms are pervasive, ii) firm size distributions display a "missing middle" and iii) underdeveloped financial markets seriously constrain the investment decisions of firms. This paper studies an incomplete contract model in which the integration decision is chosen to maximize the returns of two vertically related projects to an investor. The model jointly determines the financing, size and organization of firms. Vertical integration trades-off the benefits of joint liability against the cost of rendering the supply chain more opaque from the point of view of investors. The model shows that vertical integration is more likely to arise for intermediate levels of investor protection and that better contract enforcement reduces vertical integration if financial markets are sufficiently developed. Moreover, the firm size distribution is more likely to display a missing middle in industries which favor vertical integration. The model sheds light on the industrial organization of developing countries showing that the motives for vertical integration are not necessarily higher in those countries.
Item Type: | Conference Item (Paper) | ||||
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Subjects: | H Social Sciences > HC Economic History and Conditions | ||||
Divisions: | Faculty of Social Sciences > Economics | ||||
Official Date: | 27 October 2007 | ||||
Dates: |
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Number of Pages: | 11 | ||||
Status: | Peer Reviewed | ||||
Publication Status: | Published | ||||
Conference Paper Type: | Paper | ||||
Title of Event: | Northeast Universities Development Consortium Conference | ||||
Type of Event: | Conference | ||||
Location of Event: | Cambridge, MA | ||||
Date(s) of Event: | 26-27 Oct 2007 | ||||
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Vertical integration and investor protection in developing countries. (deposited 20 Apr 2011 10:52)
- Vertical integration, missing middle and investor protection in developing countries. (deposited 22 May 2012 09:14) [Currently Displayed]
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