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Organizing global supply chains: input costs shares and vertical integration

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  • Berlingieri, Giuseppe
  • Pisch, Frank
  • Steinwender, Claudia

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.

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  • Berlingieri, Giuseppe & Pisch, Frank & Steinwender, Claudia, 2018. "Organizing global supply chains: input costs shares and vertical integration," LSE Research Online Documents on Economics 91706, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:91706
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    Cited by:

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    2. Ziran Ding, 2022. "Firm heterogeneity, variable markups, and multinational production: A review from trade policy perspective," Journal of Economic Surveys, Wiley Blackwell, vol. 36(5), pages 1311-1357, December.
    3. Eppinger, Peter & Kukharskyy, Bohdan, 2021. "Contracting institutions and firm integration around the world," European Economic Review, Elsevier, vol. 137(C).
    4. Pisch, Frank, 2020. "Managing global production: theory and evidence from just-in-time supply chains," LSE Research Online Documents on Economics 108488, London School of Economics and Political Science, LSE Library.
    5. Rodrigo García Arancibia & Mariano Coronel & Jimena Vicentin Masaro, 2021. "Latin American Beer Production and Import Demand for Regional Malt and Malted Barley," Working Papers 85, Red Nacional de Investigadores en Economía (RedNIE).

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    More about this item

    Keywords

    vertical integration; supply chains; direct requirements; input output relationship; intrafirm trade;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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