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Vertical integration and investor protection in developing countries

Macchiavello, Rocco (2010) Vertical integration and investor protection in developing countries. Journal of Development Economics, 93 (2). pp. 162-172. ISSN 0304-3878

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Identification Number: 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.

Item Type: Article
Official URL: http://www.sciencedirect.com/science/journal/03043...
Additional Information: © 2009 Elsevier B.V
Divisions: Management
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
H Social Sciences > HG Finance
JEL classification: D - Microeconomics > D2 - Production and Organizations > D23 - Organizational Behavior; Transaction Costs; Property Rights
G - Financial Economics > G3 - Corporate Finance and Governance > G30 - General
L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L22 - Firm Organization and Market Structure: Markets vs. Hierarchies; Vertical Integration; Conglomerates; Subsidiaries
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O12 - Microeconomic Analyses of Economic Development
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O16 - Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
Sets: Departments > Management
Date Deposited: 03 Nov 2016 14:41
Last Modified: 20 Jan 2020 04:16
URI: http://eprints.lse.ac.uk/id/eprint/68221

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