Dezember 2018

IZA DP No. 12036: Does "Network Closure" Beef up Import Premium?

We investigate whether network closure in the supply chain can explain the heterogeneity observed in import premia. Using unique panel data on trade flows among beef farms in the Italian region of Piedmont, we analyze a purely sequential supply chain characterized by the co-existence of two competing production systems: domestic cattle, of lower quality and less risky, and imported cattle, of higher quality and exposed to higher risks. Our findings indicate that trust and mutual cooperation, computed in terms of network closure, are associated with increasing gains from imports and may promote the use and investment in inputs of superior quality.