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Organizing global supply chains: input costs shares and vertical integration

Berlingieri, Giuseppe, Pisch, Frank and Steinwender, Claudia (2018) Organizing global supply chains: input costs shares and vertical integration. CEP Discussion Papers (CEPDP1583). Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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Abstract

We study whether and how the technological importance of an input – measured by its cost share – is related to the decision of whether to “make” or “buy” that input. Using detailed French international trade data and an instrumental variable approach based on self-constructed IO tables, we show that French multinationals vertically integrate those inputs that have high cost shares. A stylized incomplete contracting model with both ex ante and ex post inefficiencies explains why: technologically more important inputs are “made” when transaction cost economics type forces (TCE; favoring integration) overpower property rights type forces (PRT; favouring outsourcing). Additional results related to the contracting environment and headquarters intensity consistent with our theoretical framework show that both TCE and PRT type forces are needed to fully explain the empirical patterns in the data.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk/
Additional Information: © 2018 The Authors
Divisions: Centre for Economic Performance
Subjects: H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HF Commerce
JEL classification: F - International Economics > F1 - Trade > F10 - General
F - International Economics > F1 - Trade > F14 - Country and Industry Studies of Trade
L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L16 - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure; Industrial Price Indices
L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L23 - Organization of Production
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O14 - Industrialization; Manufacturing and Service Industries; Choice of Technology
Sets: Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 11 Jan 2019 14:15
Last Modified: 10 Oct 2019 23:27
Funders: Economic and Social Research Council
URI: http://eprints.lse.ac.uk/id/eprint/91706

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