The Make-or-Buy Decision in the Croatian Shipbuilding Industry: A Transaction Cost Economics Approach

Sergio Ermacora and Senada Smajić
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Sergio Ermacora: Independent Researcher, Bosnia & Herzegovina
Senada Smajić: LSE Consortium Sarajevo, Bosnia & Herzegovina

South East European Journal of Economics and Business, 2009, vol. 4, issue 1, 81-105

Abstract: This paper examines the make-or-buy decision in the Croatian shipbuilding industry using a Transaction Cost Economics Approach. In other words, shipyards' decision to ‘make’ a component or to ‘buy’ it from market firms is analysed in relation to certain characteristics of the transactions in order to assess whether this decision is made in accordance with the theory's predictions.The empirical investigation, which is based on a sample of 167 observations, suggests that transaction cost hypotheses are only partially confirmed. Namely, while physical asset specificity and complexity are likely to increase the probability that a transaction will be internalised, temporal asset specificity and frequency seem not to affect significantly the integration decision. However, as the analysis leaves much of the variance in the patterns of vertical integration unexplained, the finding presented in this study should be seen as tentative. The inclusion of the remaining shipyards in the analysis as well as of new and more variables in the model are likely to improve the reliability of the results.

Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:seejeb:v:4:y:2009:i:1:p:81-105:n:6

DOI: 10.2478/v10033-009-0006-3

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South East European Journal of Economics and Business is currently edited by Adnan Efendic, Vesna Babić-Hodović and Aziz Šunje

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