Institutional Quality And Supply Chain Efficiency

Since entering the new century, the international division of labor changes from product level deep into the process level. Many production processes of products are distributed to different stages, dispersed to different countries or regions to do, and connected with cross-border intra-product trade. Nowadays, with the increasing development of economic globalization and decentralization of production day by day, focusing on the total value of trade of the economies is not able to illustrate something. There may be significant differences between statistics of total value of trade and trade benefits obtained. In this division of labor, a complete commodity production process is divided into several stages, and each stage has different value added. The continuous and divisible stages constitute supply chain of the intra-product division. Participating Countries of division of labor are only engaged in the particular stages of production process, and get that part of value added belonging to their own countries in a particular position of the global supply chain. It is due to the intra-product international division of labor, all links of the product supply chain distribute reasonably in the world, reducing production cost and increasing productivity maximumly.With the research of development of value added supply chain, more and more scholars realize that in addition to the overall level of economic development, capital and labor endowments, price factor, foreign capital factors, scientific and technological level factors, institutional quality will have an effect on value added trade of supply chain.Now that institutional quality may have profound effect on international trade, affecting some aspects of the comparative advantage. And in the background of building the Asia-pacific efficient supply chains presented by president Xi, improving value added of the supply chain enhancing upstreamness of production is becoming an increasingly hot research issue. According to the above idea, a nature question will be asked in this paper:in the background of intra-product international division of labor, whether does institutional quality become the important factor of affecting value added of supply and upstreamness and sequentially affecting the supply chain efficiency?First, this paper reviews the previous studies on the institutional quality and issues about trade, and then on the basis of existing research, it builds institutional quality index on the base of property rights system, economic system and macro-political system, and makes comparisons of cross-APEC countries. Finally this paper gives the definition of "efficient supply chain", and builds the supply chain efficient index on the basis of the measure method of KPWW to export value added.In terms of theory, this paper starts with export decomposition, analyzing how institutional quality lowers the cost of trade, and then improve supply chain efficiency. Then, this paper elaborates the function of the institution to supply chain efficiency from three aspects:property rights system, economic system and macro-political system. Referring to the latest incomplete contract theory, this paper extends the property-rights theory of the organization of production in Antras and Chor (2013), and does mathematical analysis on influencing mechanism of institutional quality and supply chain efficiency. The theoretical analysis shows that institutional quality promotes supply chain efficiency. Namely, the higher the institutional quality, the higher the supply chain efficiency.Based on the theory above, this paper analyzes the impact of institutional quality to supply chain efficiency from empirical aspect, using institutional quality index built above, supply chain efficiency index and APEC countries’ trade data from 1995 to 2011. The empirical results shows that institutional quality has a direct promoting effect on supply chain efficiency, that is to say, the higher institutional quality of countries (regions), the higher supply chain efficiency of their own. After adding the institutional quality and human capital, technological level, R&D level into the fixed effect model, it shows that institutional quality also has an indirect promoting effect on supply chain efficiency, which means institutional quality is able to increase supply chain efficiency by enhancing human capital and other factors.In the end, according to the theoretical and empirical results, this paper gives policies and suggestions in improving institutional quality, using foreign capital efficiently, enhancing technological level, and strengthening interconnection of infrastructures, in order to increase supply chain efficiency and thus build high efficient Asia-Pacific supply chain.