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Vertical Integration, Foreign Multinationals and Stigler's Hypotheses: An Empirical Test Using Malaysian Data

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  • Nor Ghani Md. Nor
  • Ahmad Zainuddin Abdullah
  • Khalil Md. Nor

Abstract

In this paper the hypotheses on motives for vertical integration as proposed by Stigler are empirically tested using a panel dataset from Malaysian manufacturing under both fixed‐effects and random‐effects specifications. Because the degree of multinational participation is expected to influence the results of the regression estimates, empirical tests are conducted with and without controlling for the effect of foreign firms’ participation. Depending on model specifications, evidence is found in favor of Stigler's hypotheses where vertical integration is positively related to demand growth and industry concentration. This result is generally consistent with those found in other vertical integration studies. Significantly, the coefficient estimates of the growth variable are not significant and biased downwards if there is no control on the effect of foreign multinationals in the estimation process.

Suggested Citation

  • Nor Ghani Md. Nor & Ahmad Zainuddin Abdullah & Khalil Md. Nor, 2006. "Vertical Integration, Foreign Multinationals and Stigler's Hypotheses: An Empirical Test Using Malaysian Data," Asian Economic Journal, East Asian Economic Association, vol. 20(3), pages 257-274, September.
    • Handle: RePEc:bla:asiaec:v:20:y:2006:i:3:p:257-274
    DOI: 10.1111/j.1467-8381.2006.00235.x
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    References listed on IDEAS

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    1. Perry, Martin K., 1989. "Vertical integration: Determinants and effects," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 4, pages 183-255, Elsevier.
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    3. Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998. "How does foreign direct investment affect economic growth?1," Journal of International Economics, Elsevier, vol. 45(1), pages 115-135, June.
    4. George J. Stigler, 1951. "The Division of Labor is Limited by the Extent of the Market," Journal of Political Economy, University of Chicago Press, vol. 59(3), pages 185-185.
    5. Lieberman, Marvin B, 1991. "Determinants of Vertical Integration: An Empirical Test," Journal of Industrial Economics, Wiley Blackwell, vol. 39(5), pages 451-466, September.
    6. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
    7. Caves, Richard E. & Bradburd, Ralph M., 1988. "The empirical determinants of vertical integration," Journal of Economic Behavior & Organization, Elsevier, vol. 9(3), pages 265-279, April.
    8. George J. Stigler, Chairman, Universities-National Bureau Committee for Economic Research, 1955. "Business Concentration and Price Policy," NBER Books, National Bureau of Economic Research, Inc, number univ55-1.
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    Cited by:

    1. Devadason, Evelyn & Subramaniam, Thirunaukarasu, 2014. "Trade Linkages and Domestic Market Concentration: An Empirical Exploration for Malaysia," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 48(1), pages 3-12.
    2. Adam, Radziah & khalifah, noor, 2012. "Foreign Presence and Market Concentration in Malaysian Manufacturing Industries," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 46(1), pages 119-132.

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