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Dynamics of Firm‐Supplier Relationships in a Less Developed Economy: Evidence from African Manufacturing Firms

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  • Raymond Fisman
  • Suman Ghosh

Abstract

In this paper, we study supplier‐firm interactions to explain firms' outsourcing relationships. We show that in an imperfect information setup a firm learns about the quality of its suppliers through repeated interaction. As the firm determines the suppliers' quality with greater precision, it gives a greater proportion of its contracts to these “better” suppliers. We report evidence from African manufacturing firms that is consistent with our hypothesis: both frequency and volume of transactions increase with the length of a firm's relationship with its supplier. These effects are stronger in poor contracting environments.

Suggested Citation

  • Raymond Fisman & Suman Ghosh, 2005. "Dynamics of Firm‐Supplier Relationships in a Less Developed Economy: Evidence from African Manufacturing Firms," Southern Economic Journal, John Wiley & Sons, vol. 72(2), pages 433-442, October.
    • Handle: RePEc:wly:soecon:v:72:y:2005:i:2:p:433-442
    DOI: 10.1002/j.2325-8012.2005.tb00711.x
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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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