, and participants at the MIT Macroeconomics lunch, the NBER conference on the Malaysian Currency Crisis, the NBER corporate finance program spring 2001 meeting, and Brigham Young University. We also thank several Malaysian colleagues for sharing their insights off the record. The views expressed herein are those of the authors and not necessarily those of the National Bureau of Economic Research.
, and participants at the MIT Macroeconomics lunch, the NBER conference on the Malaysian Currency Crisis, the NBER corporate finance program spring 2001 meeting, and Brigham Young University. We also thank several Malaysian colleagues for sharing their insights off the record. The views expressed herein are those of the authors and not necessarily those of the National Bureau of Economic Research.
We study the determinants of vertical integration in a new data set of over 750,000 firms from 93 countries. We present a number of theoretical predictions on the interactions between financial development, contracting costs, and the extent of vertical integration. Consistent with these predictions, contracting costs and financial development by themselves appear to have no effect on vertical integration. However, we find greater vertical integration in countries that have both greater contracting costs and greater financial development. We also show that countries with greater contracting costs are more vertically integrated in more capital-intensive industries.
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