Up- and Downstream Restructuring, Foreign Direct Investment, and Hold-Up Problems in Agricultural Transition

Hamish R Gow and Johan Swinnen

European Review of Agricultural Economics, 1998, vol. 25, issue 3, 331-50

Abstract: Reform in the transitional economies has been marked by falls in agricultural output and by decapitalisation of the agricultural production system. A key factor is the disruption caused by the break-up of the pre-reform, vertically integrated, centrally planned, contracting system within the agri-food supply chain. This paper analyses how restructuring up- and downstream from production is affecting output levels, particularly the impacts of hold-up problems characterised by excessively long payment delays for delivered products. Standard institutional solutions to the hold-up problem, including supply contracting, cooperatives and vertical integration, have disadvantages in the short-to-medium term. FDI at the processing level is shown to be capable of solving hold-up problems, whilst producing important positive spillover effects within the sector and across adjacent sectors. Empirical evidence indicates strong output, yield, and investment responses when hold-up problems are solved. Copyright 1998 by Oxford University Press.

Date: 1998
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Working Paper: UP- AND DOWNSTREAM RESTRUCTURING, FOREIGN DIRECT INVESTMENT, AND HOLD- UP PROBLEMS IN AGRICULTURAL TRANSITION (1998)
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