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Input specificity and global sourcing

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  • Van Assche, Ari
  • Schwartz, Galina A.
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    Abstract

    This paper identifies a new industry-equilibrium channel through which a firm's productivity affects its organizational choice. In a two-country model with firm heterogeneity and incomplete contracts, we show that the degree of input specificity and the hold-up friction in an outsourcing relation become a function of the final good firm's productivity when inputs are not completely specific. We examine the implications for the equilibrium international sorting pattern of firms.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of the Japanese and International Economies.

    Volume (Year): 24 (2010)
    Issue (Month): 1 (March)
    Pages: 69-85

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    Handle: RePEc:eee:jjieco:v:24:y:2010:i:1:p:69-85

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    Web page: http://www.elsevier.com/locate/inca/622903

    Related research

    Keywords: Firm heterogeneity Input specificity Hold-up problem Incomplete contracts;

    References

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    1. Christopher Johann Kurz, 2006. "Outstanding Outsourcers: A Firm- and Plant-Level Analysis of Production Sharing," Working Papers, Center for Economic Studies, U.S. Census Bureau 06-02, Center for Economic Studies, U.S. Census Bureau.
    2. Gene M. Grossman & Elhanan Helpman & Adam Szeidl, 2005. "Complementarities between Outsourcing and Foreign Sourcing," American Economic Review, American Economic Association, American Economic Association, vol. 95(2), pages 19-24, May.
    3. Oliver Hart & Sanford Grossman, 1985. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 372, Massachusetts Institute of Technology (MIT), Department of Economics.
    4. Christopher Johann Kurz, 2006. "Outstanding outsourcers: a firm- and plant-level analysis of production sharing," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2006-04, Board of Governors of the Federal Reserve System (U.S.).
    5. Pol Antràs & Elhanan Helpman, 2003. "Global Sourcing," NBER Working Papers 10082, National Bureau of Economic Research, Inc.
    6. Alireza Naghavi & Gianmarco I.P. Ottaviano, 2009. "Firm Heterogeneity, Contract Enforcement, and the Industry Dynamics of Offshoring," KITeS Working Papers, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy 022, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised May 2009.
    7. Nisvan Erkal, 2003. "Buyer-Supplier Interaction, Asset Specificity, And Product Choice," Department of Economics - Working Papers Series, The University of Melbourne 885, The University of Melbourne.
    8. Fabrice Defever & Farid Toubal, 2007. "Productivity and the sourcing modes of multinational firms: evidence from French firm-level data," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 19655, London School of Economics and Political Science, LSE Library.
    9. Barbara Spencer, 2005. "International outsourcing and incomplete contracts," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 38(4), pages 1107-1135, November.
    10. Helpman, Elhanan, 2006. "Trade, FDI and the Organization of Firms," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5589, C.E.P.R. Discussion Papers.
    11. Eiichi Tomiura, 2004. "Foreign outsourcing and firm-level characteristics: evidence from Japanese manufacturers," Hi-Stat Discussion Paper Series, Institute of Economic Research, Hitotsubashi University d04-64, Institute of Economic Research, Hitotsubashi University.
    12. Barbara J. Spencer & Larry D. Qiu, 2000. "Keiretsu and Relationship-Specific Investment: A Barrier to Trade?," NBER Working Papers 7572, National Bureau of Economic Research, Inc.
    13. Rajan, Raghuram G & Zingales, Luigi, 1998. "Power in a Theory of the Firm," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1777, C.E.P.R. Discussion Papers.
    14. Gene M. Grossman & Elhanan Helpman, 2002. "Integration Versus Outsourcing In Industry Equilibrium," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 117(1), pages 85-120, February.
    15. Rossi-Hansberg, Esteban & Antras, Pol, 2009. "Organizations and Trade," Scholarly Articles 3199064, Harvard University Department of Economics.
    16. Hart, Oliver D. & Moore, John, 1990. "Property Rights and the Nature of the Firm," Scholarly Articles 3448675, Harvard University Department of Economics.
    17. Robert C. Feenstra & Barbara J. Spencer, 2005. "Contractual Versus Generic Outsourcing: The Role of Proximity," NBER Working Papers 11885, National Bureau of Economic Research, Inc.
    18. Keith Head & John Ries & Barbara J. Spencer, 2002. "Vertical Networks and US Auto Parts Exports: Is Japan Different?," NBER Working Papers 9162, National Bureau of Economic Research, Inc.
    19. Larry D. Qiu & Barbara J. Spencer, 2001. "Keiretsu and Relationship-Specific Investment: Implications for Market-Opening Trade Policy," NBER Working Papers 8279, National Bureau of Economic Research, Inc.
    20. repec:hrv:faseco:4784029 is not listed on IDEAS
    21. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, Econometric Society, vol. 71(6), pages 1695-1725, November.
    22. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 21(2), pages 297-326, October.
    23. Andrabi, Tahir & Ghatak, Maitreesh & Khwaja, Asim Ijaz, 2006. "Subcontractors for tractors: Theory and evidence on flexible specialization, supplier selection, and contracting," Journal of Development Economics, Elsevier, Elsevier, vol. 79(2), pages 273-302, April.
    24. Williamson, Oliver E, 1979. "Transaction-Cost Economics: The Governance of Contractural Relations," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 22(2), pages 233-61, October.
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