Internationalization of Italian SMEs and the role of judicial barriers

Roberto Ippoliti (Università del Piemonte Orientale)
Greta Falavigna (CNR-IRCrES)
Giovanni Ramello (Università di Torino)

Abstract

This work investigates the role of local institutions in the internationalization process of SMEs, considering the Italian manufacturing industry and SMEs’ import trade flows between 2015 and 2019. In detail, we test the hypothesis of whether courts’ ability to enforce contracts can amplify uncertainty on the GVC, discouraging foreign suppliers from performing international transactions. We interpret these expectations in terms of financial constraints, imagining that the quality of a legal system limits firms’ access to local financial resources, which are essential to guarantee such operations. The proposed hypothesis is assessed considering alternative explanations that might characterize importers: absence of ex-ante business networks on the GVC (i), expected bankruptcy risks (ii) and asymmetric information (iii). Results are consistent to several robustness tests and, according to the collected evidence, we cannot reject the hypothesis that judicial quality might represent an institutional barrier to local SMEs, preventing their internationalization process.

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