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Sourcing Premia with Incomplete Contracts: Theory and Evidence

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  • Kohler Wilhelm K

    ()
    (University of Tübingen)

  • Smolka Marcel

    ()
    (University of Tübingen)

Abstract

Drawing on Grossman & Helpman (2004) and Antràs & Helpman (2004), we identify general conditions that result in an unambiguous mapping of a firm’s productivity level into the organizational form and location of its input sourcing. Using a detailed 2006-2008 data set for Spanish manufacturing firms, we then establish a number of stylized facts about firm-level heterogeneity in sourcing strategies that have largely gone unnoticed in existing literature on input sourcing. Finally, we explore this heterogeneity through econometric estimation of productivity premia associated with different sourcing strategies. We find a robustly significant premium on a strategy that features offshore production of intermediate inputs through a related party (vertical integration). Lower productivity premia are found for strategies that rely on outsourcing to unrelated parties abroad or on vertical integration within the home economy. Across all specifications employed, estimated mean productivity is lowest for domestic-outsourcing firms.

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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 11 (2011)
Issue (Month): 1 (February)
Pages: 1-39

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Handle: RePEc:bpj:bejeap:v:11:y:2011:i:1:n:10

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Cited by:
  1. Peter Arendorf Bache & Anders Laugesen, 2013. "Trade Liberalisation and Vertical Integration," Economics Working Papers 2013-14, School of Economics and Management, University of Aarhus.
  2. Kohler, Wilhelm & Smolka, Marcel, 2013. "Global sourcing and firm selection," University of Tuebingen Working Papers in Economics and Finance 63, University of Tuebingen, Faculty of Economics and Social Sciences.
  3. Debaere, Peter & Lee, Hongshik & Lee, Joonhyung, 2013. "Language, ethnicity and intrafirm trade," Journal of Development Economics, Elsevier, vol. 103(C), pages 244-253.
  4. Valeria Gattai & Valentina Trovato, 2014. "Estimating sourcing premia with Italian regional data," Working Papers 276, University of Milano-Bicocca, Department of Economics, revised Jun 2014.
  5. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2012. "The Empirics of Firm Heterogeneity and International Trade," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 283-313, 07.
  6. Angels Pelegrín & José García-Quevedo, 2012. "Which firms are involved in foreign vertical integration?," Working Papers 2012/38, Institut d'Economia de Barcelona (IEB).
  7. Tillmann Schwörer, 2012. "Offshoring, Domestic Outsourcing, and Productivity: Evidence for a Number of European Countries," Kiel Working Papers 1786, Kiel Institute for the World Economy.
  8. Kohler, Wilhelm & Smolka, Marcel, 2013. "Global Sourcing: Towards an Empirical Test of the Hold-up Model," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80049, Verein für Socialpolitik / German Economic Association.

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