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

Research output not available from this repository, contact author.

Request Changes to record.

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)
Subjects:	H Social Sciences > HC Economic History and Conditions
Divisions:	Faculty of Social Sciences > Economics
Official Date:	27 October 2007
Dates:	Date Event 27 October 2007 Completion
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
Related URLs:	Organisation

Data sourced from Thomson Reuters' Web of Knowledge

Request changes or add full text files to a record

Available Versions of this Item

• 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]

Repository staff actions (login required)

View Item