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Vertical integration and supplier finance

  • Kersting, Erasmus K.

    (Villanova University)

  • Gorg, Holger

    (Christian-Albrechts-Universität Kiel and Kiel Institute for the World Economy)

We investigate the financial implications of a multinational firm's choice between outsourcing and integration from the perspective of the supplier. Using a simple model, we explore the extent to which an integrated supplier's access to finance, as well as its sources of funding, change relative to a firm supplying a multinational at arm's-length. The model predicts that integrated firms have better access to finance and cover a larger share of their costs using internal funds. Furthermore, improvements in a host country's level of financial development have less of an impact on the financial situation of integrated suppliers. We present empirical evidence from firm-level data for over 60 countries broadly supporting the predictions.

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Paper provided by Federal Reserve Bank of Dallas in its series Globalization and Monetary Policy Institute Working Paper with number 168.

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Length: 30 pages
Date of creation: 31 Jan 2014
Date of revision:
Handle: RePEc:fip:feddgw:168
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