Vertical integration and efficiency: an application to the Italian machine tool industry

Fabio Pieri and Enrico Zaninotto ()

Small Business Economics, 2013, vol. 40, issue 2, 397-416

Abstract: This paper analyzes the relationship between firm efficiency and vertical integration in the Italian machine tool (MT) industry. The link may really be the result of a two-way causality: the effect may run from productive efficiency to the type of vertical organization (i.e. vertical integration or outsourcing), as a self-selection mechanism, or an effect from the organizational mode to the firm’s performance may (also) be at work. This relationship is empirically investigated in a novel panel dataset comprising about 500 Italian MT builders, implementing two equations and instrumental variables for the two directions of causality. The evidence clearly indicates the self-selection mechanism of the most efficient firms in vertically integrated structures, while an effect from the organizational mode to the firm’s efficiency is not supported. Copyright Springer Science+Business Media, LLC. 2013

Keywords: Vertical integration; Technical efficiency; Italian machine tool industry; Firm heterogeneity; Instrumental variables; D24; L22; L23; L26; L64 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (26)

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Working Paper: Vertical Integration and Efficiency: an application to the Italian Machine Tool Industry (2010)
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DOI: 10.1007/s11187-011-9367-y

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