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Vertical Integration and Technology: Theory and Evidence


Acemoglu, Daron; Aghion, Philippe; Griffith, Rachel; Zilibotti, Fabrizio (2007). Vertical Integration and Technology: Theory and Evidence. Working paper series / Institute for Empirical Research in Economics No. 342, University of Zurich.

Abstract

This paper investigates the determinants of vertical integration. We first derive annumber 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 ofnfirm and industry-level characteristics.

Abstract

This paper investigates the determinants of vertical integration. We first derive annumber 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 ofnfirm and industry-level characteristics.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Institute for Empirical Research in Economics (former)
Dewey Decimal Classification:330 Economics
Language:English
Date:December 2007
Deposited On:29 Nov 2011 22:47
Last Modified:07 Dec 2017 10:15
Series Name:Working paper series / Institute for Empirical Research in Economics
ISSN:1424-0459
Official URL:http://www.econ.uzh.ch/wp.html

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