Organizing Global Supply Chains: Input Cost Shares and Vertical Integration

Working Paper No. 25286 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 sho...

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Bibliographic Details
Published inNBER Working Paper Series p. 25286
Format Paper
LanguageEnglish
Published Cambridge National Bureau of Economic Research, Inc 01.11.2018
Subjects
Economic models
Economic theory
Economics
International trade
Productivity
Property rights
Suppliers
Supply chains
Vertical integration
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Summary:Working Paper No. 25286 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.
ISSN:0898-2937
DOI:10.3386/w25286