On March 24, 2020, the Government of India ordered a nationwide lockdown for 21 days as a preventive measure against the spread of the coronavirus. The lockdown - in full force as we write - restricts 1.3 billion people from leaving their homes. Transport services are suspended, educational institutions are closed, and factories are shut down. This is in line with the measures imposed in most European countries and in the United States, but the sheer scale of the measure- as in the case of most policies in India- is intimidating. Add to this the grim truth of Indian occupational structure and poverty, and you would likely predict what we now see: unending streams of migrants trying to find their way home, the fear of loss of all income, deep privations, and even (in the space of days) hunger, starvation and death.
An integral part of global supply chains is the selection by international buyers of trading partners in developing countries. However, our understanding of how buyers find a suitable long term supplier is limited. I use unique buyer-seller customs data to directly observe experimentation activity in a large market - the "fast fashion" industry in Bangladesh. I study how buyers of ready-made garments conduct trials of suppliers at the order-product level before settling into sustained sourcing relationships. To illustrate this process, I use a model of idiosyncratic search costs where the buyer’s costs of testing a manufacturer are determined by the heterogeneity of potential suppliers. The model shows that (1) higher supplier heterogeneity is associated with lower experimentation, (2) as heterogeneity increases, search activity falls more markedly for larger buyers than for their smaller counterparts, and (3) while buyer-seller matches are positively assortative, more heterogeneous settings see all buyers -and more markedly, large buyers- willing to accept relationships with (weakly) worse suppliers. These implications are strongly supported by the data, and hold in terms of within-buyer, cross-market differences in experimentation behavior. Finally I show that these information frictions, rooted in supplier heterogeneity, matter for the distribution of rents in these relationships: price-cost margins for suppliers are positively related to the degree of heterogeneity in the environment.
We examine whether political connections ease financial constraints faced by firms. Using firmlevel data from six Central and Eastern European economies, we show that politically connected firms are characterized by: (i) higher leverage, (ii) lower profitability, (iii) lower capitalization, (iv) lower marginal productivity of capital, and (v) lower levels of investment than unconnected firms. Politically connected firms borrow more because they have easier access than unconnected firms to credit but tend to be less productive than unconnected firms. Our results are consistent with the idea that political connections distort capital allocation and may have welfare costs.
