Bad Neighbors: Bordering Institutions as Comparative (Dis)Advantage

52 Pages Posted: 17 Jul 2015 Last revised: 7 Jan 2018

See all articles by Rodrigo Miranda

Rodrigo Miranda

University of Chile

Rodrigo Andres Wagner

UAI Business School ; Growth Lab - Harvard University (Center for Int. Development)

Date Written: November 20, 2017

Abstract

Rule of law is known to impact a country's own comparative advantage. This institution eases growth in industries intensive in customized inputs, which need better contract enforcement to avoid holdups. But most countries in the world are smaller than the natural size of the market for “nearby” suppliers and customers. We argue that neighboring nations' institutions could independently matter for specialization in these contract-intensive goods. In fact, we show that neighbors´ institutions are economically and statistically important for this comparative advantage, over and above a country's own institutions and many other confounding factors. When neighbors are culturally similar, then their rule of law is even more binding for contract intensive industries. Our findings are robust to a long battery of checks, including neighboring country´s controls, using imports, US imports and production data. Our results suggest that neighboring institutions could be a binding constraint for integration into regional or global value chains. It also provide a rationale for arbitration and dispute resolution across borders as a policy to raise the sophystication of exports.

Keywords: Make or buy, relationship specific investments, nearsourcing, arbitration, regional value chains, supply chain disruptions

JEL Classification: D23; D51; F11; L14; O11

Suggested Citation

Miranda, Rodrigo and Wagner, Rodrigo Andres, Bad Neighbors: Bordering Institutions as Comparative (Dis)Advantage (November 20, 2017). Available at SSRN: https://ssrn.com/abstract=2631248 or http://dx.doi.org/10.2139/ssrn.2631248

Rodrigo Miranda

University of Chile

Pío Nono Nº1, Providencia
Santiago, R. Metropolitana 7520421
Chile

Rodrigo Andres Wagner (Contact Author)

UAI Business School

Diagonal Las Torres 2700
Penalolen
Santiago
Chile

HOME PAGE: http://https://sites.google.com/site/rodrigoawagner

Growth Lab - Harvard University (Center for Int. Development) ( email )

79 John F. Kennedy Street
Cambridge, MA MA 02138
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
145
Abstract Views
1,467
Rank
361,118
PlumX Metrics