Transactions costs, the size of firms and industrial policy: Lessons from a comparative case study of the footwear industry in Korea and Taiwan

Abstract

A comparative case study of the footwear industry documents the greater extent of subdivision of large orders, the greater reliance on subcontracting, and the greater roles of small manufacturers and export traders in Taiwan relative to Korea. These differences are hypothesized to reflect rational, organizationally efficient private and public decisions in the face of divergent economic conditions at the outset of export-led growth, and associated higher costs of market transactions in Korea than Taiwan. The transactions costs hypothesis is shown to have superior explanatory power to the hypotheses that differences in product mix and in policy account for firm size differences.