Contracting Institutions and Location of Manufacturing

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  • Contracting Institutions and Location of Manufacturing
  • Abstract:
    We propose a model where heterogenous firms locate production depending on labour costs and the quality of contracting institutions. We explain how productive and less productive firms relocate across regions as contracting institutions improve. The impact of better institutions in one region – say Asia – on manufacturing in another region – say USA – depend on contracting institutions in both regions. A region with strong institutions may experience stronger outflow manufacturing to the region with improving institutions than a region with weaker institutions will experience.