Organizing global supply chains: input costs shares and vertical integration

Giuseppe Berlingieri, Frank Pisch and Claudia Steinwender

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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 IO 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; favouring 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)
Date: 2018-11
New Economics Papers: this item is included in nep-agr and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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http://eprints.lse.ac.uk/91706/ Open access version. (application/pdf)

Related works:
Working Paper: Organizing Global Supply Chains: Input Cost Shares and Vertical Integration (2018)
Working Paper: Organizing Global Supply Chains: Input Cost Shares and Vertical Integration (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:91706

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