Working Paper: NBER ID: w10997
Authors: Daron Acemoglu; Philippe Aghion; Rachel Griffith; Fabrizio Zilibotti
Abstract: This paper investigates the determinants of vertical integration using data from the UK manufacturing sector. We find that the relationship between a downstream (producer) industry and an upstream (supplier) industry is more likely to be vertically integrated when the producing industry is more technology intensive and the supplying industry is less technology intensive. Moreover, both of these effects are stronger when the supplying industry accounts for a large fraction of the producer's costs. These results are generally robust and hold with alternative measures of technology intensity, with alternative estimation strategies, and with or without controlling for a number of firm and industry-level characteristics. They are consistent with the incomplete contract theories of the firm that emphasize both the potential costs and benefits of vertical integration in terms of investment incentives.
Keywords: No keywords provided
JEL Codes: L22; L23; L24; L60
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher technology intensity of downstream industry (L63) | Increased likelihood of vertical integration (L22) |
| Lower technology intensity of upstream industry (L63) | Increased likelihood of vertical integration (L22) |
| Higher technology intensity of downstream industry + Lower technology intensity of upstream industry (L69) | Increased likelihood of vertical integration (L22) |
| Significant portion of costs from supplying industry (L60) | Amplified likelihood of vertical integration (L22) |