Agglomeration, related variety and vertical integration

Giulio Cainelli and Donato Iacobucci ()

No 1104, Openloc Working Papers from Public policies and local development

Abstract: Several recent studies investigate the relation between geographic concentration of production and vertical integration, based on the hypothesis that spatial agglomeration of firms in the same industry facilitates input procurement thereby reducing the degree of vertical integration. The present paper contributes to this debate by also considering the effects of industry variety at the local level. Specifically, we consider two forms of variety: unrelated variety and vertically related variety. The latter index is constructed using information drawn from input-output tables and captures the opportunities for outsourcing within the local system. We consider inter-industry vertical integration by taking account of the ownership of activities with input-output linkages. Using a dataset of 24,663 Italian business groups in 2001, we estimate Tobit models to investigate the influence of vertically related variety and other agglomeration forces on the degree of vertical integration of groups. Our evidence confirms that vertical integration is influenced by industry specialization at the local level. We also find that the higher the vertically related variety, the lower the need for firms to integrate activities since they have more opportunities to acquire intermediate goods and services within the local system.

Keywords: vertical integration; agglomeration; related-variety; business group (search for similar items in EconPapers)
JEL-codes: L2 M2 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-cis, nep-com, nep-geo, nep-hme and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Agglomeration, Related Variety, and Vertical Integration (2012)
Working Paper: Agglomeration, related variety and vertical integration (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:trn:utwpol:1104

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