Which firms are involved in foreign vertical integration?

Angels Pelegrín () and Jose Garcia-Quevedo
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Angels Pelegrín: University of Barcelona & IEB

No 2012/38, Working Papers from Institut d'Economia de Barcelona (IEB)

Abstract: In line with the literature that considers that transaction costs, asset specificity and incomplete contracts play a key role in the “make or buy decision”, this paper seeks to discriminate the characteristics of firms that make them more or less likely to integrate their activities in a foreign country. We draw on firm level data for Spanish manufacturing firms from the Survey on Business Strategies (ESEE), which enable us to identify whether their imports are intra-firm (related party) or at arm’s-length (non-related party). Our results show that candidates for vertical integration are the most productive firms and those that receive a large share of their inputs from headquarters. We also demonstrate that international experience and product differentiation favor foreign integration even after controlling for other characteristics of the firm.

Keywords: Offshoring; vertical integration; firm heterogeneity (search for similar items in EconPapers)
JEL-codes: D21 F23 L23 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:ieb:wpaper:doc2012-38

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