Supplier Reliability and Economic Reforms

Indian Institute of Management, Ahmedabad
4 October 2003

Production around the world is now increasingly characterized by shorter product cycles and just-in-time processes. Consequently, the reliability of the supplier is an important distinguishing characteristic. This paper presents a situation where suppliers in more distorted economies would be more prone, in equilibrium, to divert their production away from exports to the domestic market. As a result, importers allocate a lower share of import demand to such suppliers. It is shown that liberalization of such economies results in the importer allocating a relatively greater share of import demand to the supplier, which in turn, appears as an increase in the conomy’s exports. This ‘demand side’ channel through which domestic liberalization affects a country’s export has not yet been explored in the literature.