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Incomplete contracts and the boundaries of the multinational firm

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  • Nunn, Nathan
  • Trefler, Daniel

Abstract

Using data on U.S. intra-firm and arm's-length imports for 5705 products imported from 220 countries, we examine the determinants of the share of U.S. imports that are intra-firm. We examine two predictions that arise from Antràs (2003), Antràs and Helpman (2008) and Antràs and Helpman (2004). First, we find that, consistent with the implicit logic of Antràs (2003) and the explicit predictions of Antràs and Helpman (2008), vertical integration is increasing in the importance of non-contractible headquarter inputs relative to non-contractible supplier inputs. In other words, we show that only non-contractible headquarter inputs affect the firm's make-or-buy decision. Second, we also provide empirical support for the Antràs and Helpman (2004) prediction that intra-firm trade is largest where non-contractible headquarter inputs are important and productivity is high.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 94 (2013)
Issue (Month): C ()
Pages: 330-344

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Handle: RePEc:eee:jeborg:v:94:y:2013:i:c:p:330-344

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Web page: http://www.elsevier.com/locate/jebo

Related research

Keywords: Intra-firm trade; Incomplete contracts; Vertical integration; Outsourcing; Fixed-costs;

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References

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  1. Elhanan Helpman, 2006. "Trade, FDI, and the Organization of Firms," Journal of Economic Literature, American Economic Association, vol. 44(3), pages 589-630, September.
  2. Gene M. Grossman & Elhanan Helpman, 2002. "Outsourcing in a Global Economy?," Harvard Institute of Economic Research Working Papers 1966, Harvard - Institute of Economic Research.
  3. Oliver Hart & Sanford Grossman, 1985. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Working papers 372, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Grossman, Gene & Helpman, Elhanan, 2002. "Outsourcing Versus FDI in Industry Equilibrium," CEPR Discussion Papers 3647, C.E.P.R. Discussion Papers.
  5. Pol Antras & Elhanan Helpman, 2004. "Global Sourcing," Journal of Political Economy, University of Chicago Press, vol. 112(3), pages 552-580, June.
  6. Yeaple, Stephen & Helpman, Elhanan & Melitz, Marc, 2004. "Export versus FDI with Heterogeneous Firms," Scholarly Articles 3229098, Harvard University Department of Economics.
  7. Elhanan Helpman & Gene M. Grossman, 2002. "Managerial Incentives and the International Organization of Production," NBER Working Papers 9403, National Bureau of Economic Research, Inc.
  8. McLaren, J., 1996. "'Globalization' and Vertical Structure," Discussion Papers 1996_21, Columbia University, Department of Economics.
  9. repec:hrv:faseco:4784029 is not listed on IDEAS
  10. Peter K. Schott, 2004. "Across-product Versus Within-product Specialization in International Trade," The Quarterly Journal of Economics, MIT Press, vol. 119(2), pages 646-677, May.
  11. Nunn, Nathan, 2007. "Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade," Scholarly Articles 4686801, Harvard University Department of Economics.
  12. Pol Antr�s, 2005. "Incomplete Contracts and the Product Cycle," American Economic Review, American Economic Association, vol. 95(4), pages 1054-1073, September.
  13. Gene M. Grossman & Elhanan Helpman, 2002. "Integration Versus Outsourcing In Industry Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 85-120, February.
  14. Pol Antràs, 2003. "Firms, Contracts, and Trade Structure," NBER Working Papers 9740, National Bureau of Economic Research, Inc.
  15. Stephen Ross Yeaple, 2006. "Offshoring, Foreign Direct Investment, and the Structure of U.S. Trade," Journal of the European Economic Association, MIT Press, vol. 4(2-3), pages 602-611, 04-05.
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Citations

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Cited by:
  1. Díez, Federico J., 2014. "The asymmetric effects of tariffs on intra-firm trade and offshoring decisions," Journal of International Economics, Elsevier, vol. 93(1), pages 76-91.
  2. João Amador & Sónia Cabral, 2014. "Global Value Chains: Surveying Drivers, Measures and Impacts," Working Papers w201403, Banco de Portugal, Economics and Research Department.
  3. Defever, Fabrice & Toubal, Farid, 2011. "Productivity, Relationship-Specific Inputs and the Sourcing Modes of Multinationals," CEPR Discussion Papers 8656, C.E.P.R. Discussion Papers.
  4. Chung, Sunghoon, 2014. "Environmental regulation and foreign direct investment: Evidence from South Korea," Journal of Development Economics, Elsevier, vol. 108(C), pages 222-236.

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