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Vertical Integration, Supplier Behavior, and Quality Upgrading among Exporters

Christopher Hansman, Jonas Hjort, Gianmarco León () and Matthieu Teachout

No 961, Working Papers from Barcelona Graduate School of Economics

Abstract: We study the relationship between exporters’ organizational structure and output quality. If only input quantity is observable, theory predicts that vertical integration may be necessary to incentivize suppliers to increase input quality. Using data on suppliers’ behavior, supplier ownership, supply transactions, and manufacturers’ output by quality grade and exports from the Peruvian fishmeal industry, we show the following. After integrating with the plant being supplied and losing access to alternative pay-per-kilo buyers, suppliers take more quality-increasing and less quantity-increasing actions. Integration consequently causally increases output quality, and manufacturers integrate suppliers when facing high relative demand for high quality grades.

Keywords: vertical integration; quality upgrading; trade; Peru (search for similar items in EconPapers)
JEL-codes: D2 O1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cta, nep-ind and nep-int
Date: 2017-03
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Working Paper: Vertical Integration, Supplier Behavior, and Quality Upgrading among Exporters (2017) Downloads
Working Paper: Vertical integration, supplier behavior, and quality upgrading among exporters (2017) Downloads
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