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Organizing Global Supply Chains: Input-Output Linkages and Vertical Integration

Giuseppe Berlingieri (), Frank Pisch and Claudia Steinwender ()

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: We study whether and how the technological importance of an input - measured by its cost share - is related to the decision of whether to "make" or "buy" that input. Using detailed French international trade data and an instrumental variable approach based on self-constructed input-output tables, we show that French multinationals vertically integrate those inputs that have high cost shares. A stylized incomplete contracting model with both ex ante and ex post inefficiencies explains why: technologically more important inputs are "made" when transaction cost economics type forces (TCE; favoring integration) overpower property rights type forces (PRT; favoring outsourcing). Additional results related to the contracting environment and headquarters intensity consistent with our theoretical framework show that both TCE and PRT type forces are needed to fully explain the empirical patterns in the data.

Keywords: vertical integration; supply chains; direct requirements; input output relationship; intrafirm trade (search for similar items in EconPapers)
JEL-codes: F10 F14 L16 L23 O14 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cta and nep-int
Date: 2018-11
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