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

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  • Fabio Pieri
  • Enrico Zaninotto

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

Suggested Citation

  • Fabio Pieri & Enrico Zaninotto, 2013. "Vertical integration and efficiency: an application to the Italian machine tool industry," Small Business Economics, Springer, vol. 40(2), pages 397-416, February.
    • Handle: RePEc:kap:sbusec:v:40:y:2013:i:2:p:397-416
    DOI: 10.1007/s11187-011-9367-y
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    3. Fabio Pieri, 2015. "Vertical organization of production and firm growth behavior," Working Papers 1508, Department of Applied Economics II, Universidad de Valencia.
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    10. Giorgia Giovannetti & Enrico Marvasi & Marco Sanfilippo, 2013. "Supply Chains and the Internalization of SMEs: Evidence from Italy," Working Papers - Economics wp2013_30.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
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    14. Mariarosaria Agostino & Emanuele Brancati & Anna Giunta & Domenico Scalera & Francesco Trivieri, 2020. "Firms' efficiency and global value chains: An empirical investigation on Italian industry," The World Economy, Wiley Blackwell, vol. 43(4), pages 1000-1033, April.
    15. Sasan Bakhtiari, 2013. "Firm Size Evolution and Outsourcing," Discussion Papers 2013-07, School of Economics, The University of New South Wales.
    16. Sasan Bakhtiari, 2023. "Growing by outsourcing: a tale of two growths," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 50(2), pages 411-439, May.
    17. Concetta Castiglione & Davide Infante & Marta Zieba, 2018. "Technical efficiency in the Italian performing arts companies," Small Business Economics, Springer, vol. 51(3), pages 609-638, October.
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    19. Sant'Anna, Ana Claudia & Bergtold, Jason & Featherstone, Allen & Caldas, Marcellus & Granco, Gabriel, 2017. "Does Vertical Integration Increase Efficiency? A Look at Ethanol Plants in the Center-South of Brazil," 2017 Annual Meeting, February 4-7, 2017, Mobile, Alabama 252777, Southern Agricultural Economics Association.
    20. Cherkasova, Viktoria (Черкасова, Виктория) & Molchanov, Dmitriy (Молчалов, Дмитрий) & Cherkasova, Elizaveta (Черкасова, Елизавета), 2014. "The impact of vertical integration on the efficiency of companies in the emerging capital markets [Влияние Вертикальной Интеграции На Эффективность Деятельности Компаний На Развивающихся Рынках Кап," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 4, pages 60-78.
    21. Bem, Justin & Tegoum, Pierre Joubert Nguetse & Tcheeko, Tatiana Morel Samo & Essoh, Jacksone, 2013. "Efficience de production du secteur informel non-agricole et réduction de la pauvreté au Cameroun," PEP Working Papers 160432, Partnership for Economic Policy (PEP).
    22. Bakhtiari Sasan, 2016. "Assortative Outsourcing with Exit," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 16(1), pages 119-142, January.
    23. Alessandro Manello & Giuseppe G. Calabrese & Piercarlo Frigero, 2016. "Technical efficiency and productivity growth along the automotive value chain: evidence from Italy," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 25(2), pages 245-259.

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    More about this item

    Keywords

    Vertical integration; Technical efficiency; Italian machine tool industry; Firm heterogeneity; Instrumental variables; D24; L22; L23; L26; L64;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L64 - Industrial Organization - - Industry Studies: Manufacturing - - - Other Machinery; Business Equipment; Armaments

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