Transaction Cost, Industry Characteristics And Manufacturing’s Vertical Integration Level

Generally, different industries have different vertical integration levels and same industries always have similar levels. In the document "the guidance on accelerating merger and reorganization of the key industries and enterprises" issued by the Ministry of industry and information in 2013, it refers to that government should give different guidance to different industries and enterprises, combining with their own characteristics and actual situations. So, it is necessary to research the relationship and degree between industry’s vertical integration level and industry characteristics. This study focuses on how transaction cost and industry characteristics affect vertical integration level, based on current development of manufacturing, which has a guiding significance on firms’decision of vertical integration.Firstly, we use VAS to calculate the vertical integration levels of 28 Chinese manufacturing industries during 2000-2011, according to which we classify the manufacturing. Then, we get the whole variation trend of the vertical integration levels of manufacturing by Principal Component Analysis. In terms of industry characteristics, we chose labor intensity, technology intensity, industry scale and export intensity as the representative of it. Afterwards, we calculate the industry characteristics and classify manufacturing by Cluster Analysis.Based on the theoretical model, this article analyzes the impacts of transaction cost and industry characteristics on manufacturing’s vertical integration levels by using the panel data of 28 Chinese manufacturing industries during 2000-2011, combining with transaction cost economics. The result shows that manufacturing’s vertical integration levels are positively influenced by industry scale and negatively influenced by transaction frequency, labor intensity, technology intensity and export intensity, and asset specificity has non-significant effect on vertical integration level. Finally, based on the theoretical and empirical researches, several suggestions are provided for business decisions and government policy.