Antonio Accetturo (p), Andrea Linarello, Andrea Petrella

Paolo Veneri

Over the past twenty five years structural change in the global economy has occurred as a consequence of the ICT revolution, the steady lowering of trade barriers and transport costs, and the access to global markets by several low-wage countries (Antras, 2014). The outcome is a new international division of labor in which the production of final products is fragmented in Global Value Chains (GVC henceforth). The production process for any given good can be split in tasks assigned to various productive units performed in several places around the world.
GVC are characterized by contractual relationships between intermediate producers and assemblers for the delivery of specialized goods. The production of these goods often require relationship-specific investments; if contracts are incomplete or have a low enforceability, hold-up problems may arise with a suboptimal level of investments and aggregate surplus (Antras, 2003 and 2004). In this context the quality of law enforcement may play a relevant role.
In this paper we provide evidence that law enforcement may influence firm participation to GVC. By using the population of Italian manufacturing firms (2011 Italian census), we show that firms located in courts with higher judicial trial length in civil disputes are less likely to supply customized inputs to foreign firms; the effect is stronger in sectors characterized by relationship-specific investments.
Compared with previous studies (Anderson, 2002; Nunn, 2007), we focus on a single country and we exploit the heterogeneity in the quality of institutions within it; this is able to control for possible (nation--wide) omitted variables that correlate both with judiciary efficiency and the participation to GVC (e.g. the availability of certain contractual arrangements or the organization of public administration). In other words we exploit the heterogeneity of de facto local institutions, that are an important determinant for the (often very wide) within--country productivity differentials (Acemoglu, 2009).
Empirically, we are able to document that when firms are located in inefficient courts, the probability to supply intermediate inputs abroad decreases: a one-year increase in trial length is associated with a 0.8 percentage point reduction of this probability. The effect is driven by firms that operate in industries that make a more intensive use of relation-specific investments. We find that one-year increase in trial length decreases the probability to supply customized inputs by 0.6 to 1.1 percentage points in industries at the 25th and 75th percentile of contract intensity, respectively.

Paolo Veneri (p), Alessia De Stefani, Marcos Diaz-Ramirez

Antonio Accetturo

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