No. 397 - Legal enforcement and Global Value Chains: micro-evidence from Italian manufacturing firms

In this paper we study the relationship between the quality of contract enforcement and firms' participation in Global Value Chains. Using new data on Italian manufacturing firms' supply of customized inputs to other firms and variations in law enforcement in courts across Italy, we find that firms located in courts with longer trial lengths are less likely to supply customized intermediate inputs to foreign firms. The effects are stronger for firms operating in contract-intensive industries. Our results are confirmed when we use a spatial regression discontinuity design that compares the probability of supplying customized inputs for firms that are located on different sides of a court border, and are therefore characterized by different trial lengths.