Courts, Contracts, and International Trade: Judicial Enforcement and Global Value Chain Participation

Abstract

This paper examines whether judicial enforcement shapes firms' participation in global value chains (GVCs). Exploiting Italy's 2013 court reorganization as a natural experiment, we combine firm-level survey data with administrative records and implement a spatial discontinuity IV design. We find that longer trials significantly reduce the probability of GVC participation: even delays of just a few weeks in civil proceedings translate into sizeable declines, underscoring the economic value of timely enforcement. The effect is concentrated among downstream firms and in trade with advanced markets, and operates through external finance, product complexity, and firm opacity.

Keywords: Global Value Chains, Judicial Enforcement, Regional Development, Product Complexity