Institutions and Local Supplier Quality

A large literature has examined the relationship between institutional dimensions (such as property rights, corruption, etc.) and foreign direct investment (FDI). An emerging literature also explores the relationship between local supplier quality and FDI. We contribute to this literature by empirically examining, for the first time, the relationship between social and political institutions and local supplier quality. Our main findings are that: (a) weak property rights and low bureaucratic quality degrade the development of an effective supply chain, and (b) the effect of corruption may depend on whether corruption is 'centralized' or 'decentralized'. These results concerning local supplier quality may have important implications for FDI as well as overall economic development.