Subcontracting and vertical integration in the Spanish cotton industry1

This paper examines changes in the organization of the Spanish cotton industry from 1736 to 1860 in its core region of Catalonia. As the Spanish cotton industry adopted the most modern technology available and experienced the transition to the factory system, cotton spinning and weaving mills became increasingly vertically integrated. Asset specificity, more than other factors, explains this tendency towards vertical integration. The probability of a firm being vertically integrated was higher among firms located in districts with high concentration ratios, and rose with size and the use of modern machinery. At the same time, subcontracting predominated in other phases of production and distribution, where transaction costs appear to be less important.