NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Organizing Global Supply Chains: Input Cost Shares and Vertical Integration

Giuseppe Berlingieri, Frank Pisch, Claudia Steinwender

NBER Working Paper No. 25286
Issued in November 2018, Revised in April 2019
NBER Program(s):Industrial Organization, International Trade and Investment

We study how the technological importance of inputs – measured by cost shares – is related to the decision to “make” or “buy” that input. Using detailed French international trade data and an instrumental variable approach based on self-constructed input-output tables, we show that multinationals vertically integrate high cost share inputs. 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 overpower property rights type forces. However, additional results show that both types forces are needed to explain the full patterns in the data.

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Document Object Identifier (DOI): 10.3386/w25286

 
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