Working Paper: NBER ID: w11424
Authors: Daron Acemoglu; Simon Johnson; Todd Mitton
Abstract: We study the determinants of vertical integration in a new dataset of over 750,000 firms from 93 countries. Existing evidence suggests the presence of large cross-country differences in the organization of firms, which may be related to differences in financial development, contracting costs or regulation. We find cross-country correlations between vertical integration on the one hand and financial development, contracting costs, and entry barriers on the other that are consistent with these "priors". Nevertheless, we also show that these correlations are almost entirely driven by industrial composition; countries with more limited financial development, higher contracting costs or greater entry barriers are concentrated in industries with a high propensity for vertical integration. Once we control for differences in industrial composition, none of these factors are correlated with average vertical integration. However, we also find a relatively robust differential effect of financial development across industries; countries with less-developed financial markets are significantly more integrated in industries that are more human capital or technology intensive.
Keywords: Vertical Integration; Finance; Contracts; Regulation; Industrial Organization
JEL Codes: G30; G34; L22; L23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher contracting costs (M55) | greater vertical integration (L22) |
| less developed financial markets (G19) | higher vertical integration in human capital or technology-intensive industries (D29) |