Abstract
Theoretical and empirical research in the past decades has advanced our understanding of what determines the vertical boundary of a …rm. An equally important but much less understood issue is the impacts of vertical integration on …rm performance, mainly because of the endogeneity issue. Using a survey of China’s manufacturing …rms, we establish the causal impacts of vertical integration on …rm performance by adopting the instrumental variable approach to deal with the endogeneity issue. We …nd that the degree of vertical integration causes a negative impact on …rm sales, market share and productivity, but a positive impact on product prices.
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