Determinants of vertical integration in export processing: Theory and evidence from China

Ana Fernandes and Heiwai Tang

Journal of Development Economics, 2012, vol. 99, issue 2, 396-414

Abstract: This paper examines the determinants of vertical integration versus outsourcing in export processing, by exploiting the coexistence of two export processing regimes in China, which designate by law who owns and controls the imported components. Based on a variant of the Antràs-Helpman (2004) model, we show theoretically that control over imported components for assembly can affect firm integration decisions. Our empirical results show that when Chinese plants control the use of components, the export share of foreign-owned plants is positively correlated with the intensity of inputs provided by the headquarter (capital, skill, and R&D). These results are consistent with the property-rights theory of intra-firm trade. However, when foreign firms own and control the components, there is no evidence of a positive relationship between the intensity of headquarters' inputs and the prevalence of vertical integration. The results are consistent with our model that considers control over imported components as an alternative to asset ownership to alleviate hold-up by export-processing plants.

Keywords: Intra-firm trade; Vertical integration; Export processing; Outsourcing (search for similar items in EconPapers)
JEL-codes: F14 F23 L14 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (66)

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Related works:
Working Paper: The Determinants of Vertical Integration in Export Processing: Theory and Evidence from China (2010)
Working Paper: The Determinants of Vertical Integration in Export Processing: Theory and Evidence from China (2010)
Working Paper: The determinants of vertical integration in export processing: theory and evidence from China (2010)
Working Paper: The Determinants of Vertical Integration in Export Processing: Theory and Evidence from China (2010)
Working Paper: The Determinants of Vertical Integration in Export Processing: Theory and Evidence from China (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:99:y:2012:i:2:p:396-414

DOI: 10.1016/j.jdeveco.2012.05.004

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