This paper analyzes the relationship between firm efficiency and vertical integration in the Italian machine tool (MT) industry. The link may really be the result of a two-way causality: the effect may run from productive efficiency to the type of vertical organization (i.e. vertical integration or outsourcing), as a self-selection mechanism, or an effect from the organizational mode to the firm’s performance may (also) be at work. This relationship is empirically investigated in a novel panel dataset comprising about 500 Italian MT builders, implementing two equations and instrumental variables for the two directions of causality. The evidence clearly indicates the self-selection mechanism of the most efficient firms in vertically integrated structures, while an effect from the organizational mode to the firm’s efficiency is not supported.
Small Business Economics – Springer Journals
Published: Sep 22, 2011
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