Firm boundaries in Transition countries.. The influence of technological and institutional links

Using BEEPS cross-section data for one of the world largest markets among developing economies, transition countries, this paper aims to identify the impact of technology intensity and contracting institutions on firms’ organizational forms, specifically vertical integration. Using the theoretical predictions about organizational choices drawn from incomplete contracting models, we test the impacts of technological and institutional determinants. The results show that technological and institutional forces have contrasting, even opposite, e↵ect. The improvement of contracting institutions weakens the propensity for vertical integration while the influence of technological complexity tends to increase it. Moreover, technology-intensive countries and industries show the prevalence of vertically integrated organizational modes, a result magnified by poorly functioning contracting institutions. Different impacts are also found for European and non-European transition countries. When these results are examined in light of the increasing exposure to international trade, they show that this has reinforced rather that weakened the historical tendency towards vertical integration in transition countries.