Vertical integration, disintegration and ability to export

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Vertical integration, disintegration and ability
to export

• Gianpaolo Rossini
• and Laura Vici
• Department of Economics,
• University of Bologna

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Introduction

• Firms' heterogeneities Least productive firms
  do not exit in an imperfectly competitive
  environment -gt make lower profits and confine to
  the domestic market.

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• Where do differential performances come from?
• Technology and process innovating RD
• Market strategies and other forms of RD
• Internal (vertical) organization mode

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Focus of the paper

• Internal (vertical) organization of exporting
  firms. Related theoretical (Helpman, 2006) and
  applied (Rossini and Ricciardi, 2005)
  contributions.
• LITERATURE More efficient firms lt-gt more
  vertically integrated on both a domestic and a
  cross-border basis (Antras and Helpman, 2004
  Grossman and Helpman, 2002 Buehler and
  Schmutzler, 2003)

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Main question

• Is exporting activity going to affect the degree
  of vertical integration (VI)?
• Or, are more vertically integrated firms
  exporting more than vertically disintegrated
  enterprises?

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Main results

• We provide a link between
• literature stating that only more productive
  firms export and
• literature stating that more productive firms are
  more vertically integrated.
• FINDING the more firms export the more VI they
  are. Why? A matter of size, since larger firms
  are more VI.

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Theoretical set up

• Comparison between VI and VD crossborder Cournot
  duopolies, with differentiation.
• VD linear pricing most common practice among
  input producers.
• 2-3 stages VI VD, Ex - no ex, vertical
  interaction between U and D

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• NOVELTY
• Payoffs profits per unit of capital invested.
  Shareholders aim at the maximum profit per unit
  of capital.

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Scenario 1

• Small firm versus large firm, home bias
• VD subgame (vertical restraint as in Rossini,
  2007).
• The small firm never exports, neither in the game
  equilibrium nor in subgame VI firms (and also
  VD) may export only if they are large

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Scenario 2

• Small firm versus large firm, low Home Bias
• The large firm goes VI and exports, the small
  firm goes VI but does not export.
• In the VI and VD subgames the large firm exports.
  The small does not.

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Econometric tests

• Dependent variable level of VI ? 0,1.
• Two specifications
• size, productivity and exports as explanatory
  variables
• includes RD expenditure.

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Conclusion

• Export activity seems to increase VI mostly among
  large firms.