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Vertical integration and investor protection in developing countries
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Macchiavello, Rocco (2010) Vertical integration and investor protection in developing countries. Journal of Development Economics, Vol.93 (No.2). pp. 162-172. doi:10.1016/j.jdeveco.2009.11.007 ISSN 0304-3878.
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Official URL: http://dx.doi.org/10.1016/j.jdeveco.2009.11.007
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. (C) 2009 Elsevier B.V. All rights reserved.
Item Type: | Journal Article | ||||
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Subjects: | H Social Sciences > HC Economic History and Conditions | ||||
Divisions: | Faculty of Social Sciences > Economics | ||||
Journal or Publication Title: | Journal of Development Economics | ||||
Publisher: | Elsevier | ||||
ISSN: | 0304-3878 | ||||
Official Date: | November 2010 | ||||
Dates: |
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Volume: | Vol.93 | ||||
Number: | No.2 | ||||
Number of Pages: | 11 | ||||
Page Range: | pp. 162-172 | ||||
DOI: | 10.1016/j.jdeveco.2009.11.007 | ||||
Status: | Peer Reviewed | ||||
Publication Status: | Published | ||||
Access rights to Published version: | Restricted or Subscription Access |
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