Abstract
This chapter develops simple imperfect-contracting variants of the Melitz model of exporting and discusses empirical evidence suggestive of the role of these frictions as determinants of the structure of international trade flows. It explores both theoretically as well as empirically the significance of weak contract enforcement for the export decisions of firms and, more broadly, for the structure of international trade flows. As explained in Chapter 1, the rapid growth in intermediate input trade has been one of the most prominent developments in the world economy in recent years. At the same time, the contractual relationships that support the phenomenon of offshoring are much more intricate than those that support the mere shipment of goods across countries. Thus, weak contract enforcement has the potential to affect the global organization of production in more profound ways than has been studied so far.
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