Intrafirm Trade and Product Contractibility

We examine the product and country determinants of intrafirm trade. In particular, we introduce a new measure of products' revealed contractibility based on the idea that contracting likely is easier for products passing through intermediaries such as wholesalers. We find that both this measure and countries' governance quality are associated with variation in intrafirm trade in interesting and intuitive ways, and that factors associated with engaging in related-party trade differ from those associated with the intensity of intrafirm trade once a link is established. Higher quality country governance, for example, is associated with a higher probability of related-party trade taking place. Further increases in quality, however, coincide with lower shares of related -party trade, presumably due to the greater ease with which arm's length contracts can be written. With respect to interactions of product and country attributes, improvements in country governance lead to the largest reductions in intrafirm trade in low contractibility products.