Vertical integration and technology: theory and evidence

By Rachel Griffith, Fabrizio Zilibotti, Philippe Aghion, Daron Acemoglu. 2004

351 citations recorded by the source corpus.

This paper investigates the determinants of vertical integration. We first derive a number of predictions regarding the relationship between technology intensity and vertical integration from a simple incomplete contracts model. Then, we investigate these predictions using plant-level data for the UK manufacturing sector. Most importantly, and consistent with theory, we find that the technology intensities of downstream (producer) and upstream (supplier) industries have opposite effects on the likelihood of vertical integration. Also consistent with theory, both 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.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/06f17956b3be36074ce9430a1e65abc5dad8f9d7

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In Economics and Econometrics

Citations in the corpus

Human geography and the institutions that underlie economic growth (2011, background): “There is a growing consensus in the literature that the meta-institutions of property rights and the rule of law are most important (Rodrik et al., 2004; Acemoglu et al., 2004).”
Corruption, South African Multinational Enterprises and Institutions in Africa (2014, background): “The impact of colonialism on institutional development, in particular, has a strong theoretical base (see Acemoglu et al. 2004) and it may be worthwhile to link this with the international business literature on the impact of institutional voids on MNEs.”
Vertical integration and firm boundaries : the evidence (2007, background): “The exception (Daron Acemoglu et al. 2005) finds that supplier R&D intensity in U.K. manufacturing is associated with less integration.”
Technology and financial structure: are innovative firms different? (2004, background): “See, for example, Acemoglu, Aghion, and Zilibotti (2003) and Acemoglu et al. (2003).”
Technology and Production Fragmentation: Domestic versus Foreign Sourcing (2016, background): “There is also evidence that technology affects optimal firm boundaries (Baker and Hubbard, 2003, 2004; Acemoglu et al., 2010) and the decentralization of control within a firm (Acemoglu et al., 2007; Bloom et al., 2011).”
Do Vertical Mergers Facilitate Upstream Collusion? Second Version (2005, positive): “Acemoglu et al. (2003) find that vertical integration is positively correlated with firm size in the UK manufacturing sector.”