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Contracting Institutions and the Insertion of LAC in International Production Networks

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  • Blyde, Juan S.

Abstract

This paper examines the role of contracting institutions on the insertion of developing countries in international production networks and particularly on the prospects of LAC to source goods beyond the region's traditional patterns of specialization. We show that LAC's insertion in global production networks is biased towards arm's-length transactions in industries that tend to be labor-intensive and that do not typically require relation-specific investments. We also show that the countries that have been able to diversify their export successfully in international production networks have not focused exclusively on arm's-length transactions but engage in both types of sourcing via arm's-length and intra-firm trade. Results from an econometric model indicate that taking advantage of offshoring opportunities arising from capital- and contract-intensive industries requires fostering the quality of contractual institutions. Increasing the quality of contracting institutions is likely to improve first the chances of supplying contract-intensive activities through FDI, but further increases may potentially induce additional offshoring through local contractors.

Suggested Citation

  • Blyde, Juan S., 2012. "Contracting Institutions and the Insertion of LAC in International Production Networks," IDB Publications (Working Papers) 4035, Inter-American Development Bank.
  • Handle: RePEc:idb:brikps:4035
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    References listed on IDEAS

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    1. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2010. "Intrafirm Trade and Product Contractibility," American Economic Review, American Economic Association, vol. 100(2), pages 444-448, May.
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    More about this item

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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