Vertical integration and investor protection in developing countries

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Nota di Lavoro ; No. 86.2009

Classification and Topics

• Classification: Wirtschaft ; Microeconomic Analyses of Economic Development ; Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance ; Organizational Behavior; Transaction Costs; Property Rights ; Corporate Finance and Governance: General ; Firm Organization and Market Structure
• Subject: Vertical Integration ; Industrial Development ; Financial Constraints ; Joint Liability ; Trade Credit ; Community-based Industries

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Macchiavello, Rocco
• Event: Veröffentlichung
• (who): Fondazione Eni Enrico Mattei (FEEM)
• (where): Milano
• (when): 2009

Further information

• Handle: http://hdl.handle.net/10419/53396
• Last update: 10.03.2025, 11:42 AM CET