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Vertical integration and technology: theory and evidence


Acemoglu, Daron; Aghion, Philippe; Griffith, Rachel; Zilibotti, Fabrizio (2010). Vertical integration and technology: theory and evidence. Journal of the European Economic Association, 8(5):989-1033.

Abstract

We study 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 the theoretical predictions, we find that the technology intensity of downstream (producer) industries is positively correlated with the likelihood of integration whereas the intensity of upstream (supplier) industries is negatively correlated with it. Also consistent with theory, both correlations 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. (JEL: L22, L23, L24, L60)

Abstract

We study 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 the theoretical predictions, we find that the technology intensity of downstream (producer) industries is positively correlated with the likelihood of integration whereas the intensity of upstream (supplier) industries is negatively correlated with it. Also consistent with theory, both correlations 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. (JEL: L22, L23, L24, L60)

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:September 2010
Deposited On:27 Jan 2011 13:09
Last Modified:05 Apr 2016 14:40
Publisher:MIT Press
ISSN:1542-4766
Additional Information:Copyright: MIT Press
Publisher DOI:https://doi.org/10.1111/j.1542-4774.2010.tb00546.x

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