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This paper investigates the determinants of vertical integration using data from the UK manufacturing sector. We find that the relationship between a downstream (producer) industry and an upstream (supplier) industry us more likely to be vertically integrated when the producing industry is more technology intensive and the supplying industry is less technology intensive. Moreover, both of these effects are stronger when the supplying industry accounts for a large fraction of the producer\\\'s costs. These results are generally robust and hold with alternative measures of technology intensity, with alternative estimation straegies, and with or without contraolling for a number of firm and industry-level characteristics. They are consistent with the incomplete contract theories of the firm that emphasize both the potential costs and benefits of vertical integration in terms of investment incentives.
Authors
![Rachel Cassidy](/sites/default/files/styles/square_desktop/public/2022-08/Rachel_Griffith.jpg?itok=YovGgLq9)
CPP Co-Director, IFS Research Director
Rachel is Research Director and Professor at the University of Manchester. She was made a Dame for services to economic policy and education in 2021.
![Person graphic](/sites/default/files/styles/square_desktop/public/2022-06/IFS-person-graphic.png?itok=hWCtTSrz)
Fabrizio is Chair of Macroeconomics, Institute for International Economic Studies and an International Fellow of IFS.
![Philippe Aghion](/sites/default/files/styles/square_desktop/public/2022-06/Philippe_Aghion.jpg?itok=5T5iMNaV)
Research Fellow London School of Economics
Philippe is an IFS Research Fellow, a Professor of Economics at LSE, at the College de France and at INSEAD, and a Fellow at the Econometric Society.
![Person graphic](/sites/default/files/styles/square_desktop/public/2022-06/IFS-person-graphic.png?itok=hWCtTSrz)
Daron Acemoglu
Working Paper details
- DOI
- 10.1920/wp.ifs.2004.0434
- Publisher
- IFS
Suggested citation
Acemoglu, D et al. (2004). Vertical integration and technology: theory and evidence. London: IFS. Available at: https://ifs.org.uk/publications/vertical-integration-and-technology-theory-and-evidence (accessed: 30 June 2024).
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