NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Vertical Integration, Supplier Behavior, and Quality Upgrading among Exporters

Christopher Hansman, Jonas Hjort, Gianmarco León, Matthieu Teachout

NBER Working Paper No. 23949
Issued in October 2017
NBER Program(s):DEV, ITI, PR

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.

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Document Object Identifier (DOI): 10.3386/w23949

 
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