The Impact of Vertical Integration and Outsourcing on Firm Efficiency: Evidence from the Italian Machine Tool Industry

Fabio Pieri and Enrico Zaninotto ()
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Enrico Zaninotto: DISA, Faculty of Economics, Trento University

No 1001, DISA Working Papers from Department of Computer and Management Sciences, University of Trento, Italy

Abstract: In this paper we made use of an econometric approach to efficiency analysis in order to capture the role of vertical integration and outsourcing on firm's efficiency. Vertical integration is considered an indicator of structure, while outsourcing represents the process of its change. We consider inefficiency measures as indicators of organizational heterogeneity, related to the firm's choices regarding the phases of the production process that are under its control. We find support for the hypothesis of a relationship between vertical integration and efficiency. The results on outsourcing activity, and in particular the interaction between outsourcing and vertical structure, indicate that heterogeneous patterns, far from tending to cancel out each other as a consequence of common external changes, are reinforcing. Moreover, the sensitivity of inefficiency variance to the cycle, indicate that different firms may have different dynamic properties.

Keywords: vertical integration; outsourcing; technical efficiency; double heteroskedastic model (search for similar items in EconPapers)
JEL-codes: D24 L23 L25 L64 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2010-03, Revised 2010-03-11
New Economics Papers: this item is included in nep-bec, nep-com and nep-eff
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