Institution-Driven Comparative Advantage and Organizational Choice

24 Pages Posted: 8 Oct 2012 Last revised: 17 Jul 2014

See all articles by Shon M. Ferguson

Shon M. Ferguson

Swedish University of Agricultural Sciences (SLU) - Department of Economics

Sara Formai

Independent

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Date Written: September 1, 2012

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 contract enforcement institutions determine international trade patterns. We find that the benefits of judicial quality for the exports of contract-intense goods are more muted in industries that have a greater propensity towards vertical integration arrangements with input suppliers. We show that our results are not driven by primitive industry characteristics. Our results confirm the role of judicial quality 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.

Keywords: International Trade, Comparative Advantage, Contract Enforcement, Vertical Integration

JEL Classification: D23, F10, F14, L22, L23

Suggested Citation

Ferguson, Shon M. and Formai, Sara, Institution-Driven Comparative Advantage and Organizational Choice (September 1, 2012). IFN Working Paper No. 925, Available at SSRN: https://ssrn.com/abstract=2158607 or http://dx.doi.org/10.2139/ssrn.2158607

Shon M. Ferguson (Contact Author)

Swedish University of Agricultural Sciences (SLU) - Department of Economics

Box 7013
Ulls hus, Ulls väg 27
Uppsala, 750 07
Sweden

Sara Formai

Independent ( email )

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