Intermediate Goods, Institutions and Output per Worker

This paper tests a specific channel through which institutions affect output per capita: the role of institutions in firm-level division of production. We argue that weaker institutions increase transaction costs, including those incurred by a firm when dealing with suppliers of intermediate goods. Firms respond to these higher costs by substituting intermediate goods produced within the firm for those externally supplied, which in turn discourages specialization and consequently decreases productivity. To test this channel, we rely on differences across sectors in their capacity to substitute internal goods for intermediate goods. We first create an index that measures the 'complexity' of a sector's intermediate structure using data from the United States. Using this index, we find that industries with a more complex intermediate goods structure suffer a relatively larger loss of productivity in countries with poorer institutions. l II) could be helpful on this task.

[1]  A. Rodrı́guez-Clare.  Multinationals, Linkages, and Economic Development , 1996 .

[2]  C. I. Jones,et al.  Why Do Some Countries Produce so Much More Output Per Worker than Others? , 1998 .

[3]  W. Gray,et al.  The NBER Manufacturing Productivity Database , 1996 .

[4]  Florencio Lopez-de-Silanes,et al.  The quality of government , 1999 .

[5]  W. Dugger.  The Economic Institutions of Capitalism , 1987 .

[6]  A. Venables.  Trade policy, cumulative causation, and industrial development , 1996 .

[7]  James A. Robinson,et al.  The Colonial Origins of Comparative Development: An Empirical Investigation , 2000 .

[8]  A. Dixit,et al.  Monopolistic competition and optimum product diversity , 1977 .

[9]  G. Stigler.  The Division of Labor is Limited by the Extent of the Market , 1951, Journal of Political Economy.

[10]  Kiminori Matsuyama,et al.  Start-Up Costs and Pecuniary Externalities as Barriers to Economic Development , 1993 .

[11]  R. Barro,et al.  International Measures of Schooling Years and Schooling Quality , 1996 .

[12]  D. North,et al.  Economic performance through time , 2012 .

[13]  Paul M. Romer,et al.  Growth Based on Increasing Returns Due to Specialization , 1987 .

[14]  Luigi Zingales,et al.  Financial Dependence and Growth , 1996 .

[15]  Harry I. Greenfield,et al.  Manpower and the growth of producer services , 1970 .

[16]  Allyn A. Young,et al.  INCREASING RETURNS AND ECONOMIC PROGRESS , 1928 .

[17]  J. Tybout,et al.  Manufacturing Firms in Developing Countries: How Well Do They Do, and Why? , 1998 .

[18]  A. Rodrı́guez-Clare,et al.  The division of labor and economic development , 1996 .

[19]  P. Mauro.  Corruption and Growth , 1995 .

[20]  T. Beck,et al.  Finance and the Sources of Growth , 1999 .

[21]  David H. Autor,et al.  Computing Inequality: Have Computers Changed the Labor Market? , 1998 .

[22]  Y. Kubo.  A cross-country comparison of interindustry linkages and the role of imported intermediate inputs , 1985 .

[23]  P. A. Wilson,et al.  Exports and Local Development: Mexico's New Maquiladoras. , 1992 .

[24]  M. Porter.  The Competitive Advantage Of Nations , 1990 .

[25]  J. Tirole.  The Theory of Industrial Organization , 1988 .

[26]  Douglass C. North,et al.  The Rise of the Western World: A New Economic History , 1973 .

[27]  T. Holmes.  Localization of Industry and Vertical Disintegration , 1999, Review of Economics and Statistics.

[28]  P. Romer,et al.  New Goods, Old Theory, and the Welfare Costs of Trade Restrictions , 1993 .

[29]  Christopher K. Clague.  Factor proportions, relative efficiency and developing countries' trade , 1991 .

[30]  Ricardo J. Caballero,et al.  Creative Destruction and Development: Institutions, Crises, and Restructuring , 2000 .

[31]  J. Fitzgerald,et al.  Where Did All the Growth Go , 1994 .

[32]  Justin Yifu Lin,et al.  Institutions and economic development , 1995 .