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Greasing the Wheels of International Commerce: How Services Facilitate Firms' International Sourcing

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  • Peter Debaere
  • Holger Görg
  • Horst Raff

Abstract

We use unique plant-level data to study the link between the local availability of services and the decision of manufacturing firms to source materials from abroad. To guide our empirical analysis we develop a monopolistic-competition model of the materials sourcing decisions of heterogeneous firms. The model generates predictions about how the intensity of international sourcing of materials depends on a firm’s productivity and the availability of local services. These predictions are supported by the data. We find evidence that more productive manufacturing firms tend to have a higher ratio of imported materials to sales. In addition, we find evidence that services grease the wheels of international commerce: A greater availability of services across regions, industries and time increases a firm’s foreign sourcing of materials relative to sales. Interestingly, this positive impact of local service availability on imports especially applies to stand-alone firms that, unlike multinationals, are less likely to rely on imported or internally provided services.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2941.

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Date of creation: 2010
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Handle: RePEc:ces:ceswps:_2941

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Keywords: international trade; services; off-shoring; supply chain management; firm heterogeneity;

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References

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  1. Horst Raff & Nicolas Schmitt, 2009. "Imports, Pass-Through, and the Structure of Retail Markets," Kiel Working Papers 1556, Kiel Institute for the World Economy.
  2. Pol Antras & Elhanan Helpman, 2003. "Global Sourcing," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 2005, Harvard - Institute of Economic Research.
  3. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  4. 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.
  5. Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, Elsevier, vol. 54(1), pages 75-96, June.
  6. Robert C. Feenstra, . "Integration Of Trade And Disintegration Of Production In The Global Economy," Department of Economics, California Davis - Department of Economics 98-06, California Davis - Department of Economics.
  7. Marc J. Melitz & Gianmarco I.P. Ottaviano, 2005. "Market Size, Trade, and Productivity," NBER Working Papers 11393, National Bureau of Economic Research, Inc.
  8. GIRMA, Sourafel & GOERG, Holger & STROBL, Eric, 2004. "Exports, international investment, and plant performance : evidence from a non-parametric test," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2004009, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  9. Deardorff, A.V., 2000. "International Provision of Trade Services, Trade, and Fragmentation," Working Papers, Research Seminar in International Economics, University of Michigan 463, Research Seminar in International Economics, University of Michigan.
  10. Stephen S. Golub & Ronald W. Jones & Henryk Kierzkowski, 2007. "Globalization and Country-Specific Service Links," Journal of Economic Policy Reform, Taylor and Francis Journals, Taylor and Francis Journals, vol. 10(2), pages 63-88.
  11. Kei-Mu Yi, 2000. "Can vertical specialization explain the growth of world trade?," Staff Reports, Federal Reserve Bank of New York 96, Federal Reserve Bank of New York.
  12. Joseph F. Francois, 1990. "Trade in Producer Services and Returns Due to Specialization under Monopolistic Competition," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 23(1), pages 109-24, February.
  13. Stephen S. Golub & Ronald W. Jones & Henryk Kierzkowski, 2007. "Globalization and Country-Specific Service Links," Journal of Economic Policy Reform, Taylor & Francis Journals, Taylor & Francis Journals, vol. 10(2), pages 63-88.
  14. repec:hrv:faseco:4784029 is not listed on IDEAS
  15. Van Long, Ngo & Riezman, Raymond & Soubeyran, Antoine, 2005. "Fragmentation and services," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 16(1), pages 137-152, March.
  16. Breinlich, Holger & Criscuolo, Chiara, 2011. "International trade in services: A portrait of importers and exporters," Journal of International Economics, Elsevier, Elsevier, vol. 84(2), pages 188-206, July.
  17. Ann E. Harrison & Brian J. Aitken, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, American Economic Association, vol. 89(3), pages 605-618, June.
  18. Stephen S. Golub, Ronald W. Jones, Henryk Kierzkowski, 2007. "Globalization and Country-Specific Service Links," IHEID Working Papers, Economics Section, The Graduate Institute of International Studies 05-2007, Economics Section, The Graduate Institute of International Studies.
  19. Stephen S. Golub & Ronald W. Jones & Henryk Kierzkowski, 2007. "Globalization and Country-Specific Service Links," RCER Working Papers 532, University of Rochester - Center for Economic Research (RCER).
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Citations

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Cited by:
  1. Horst Raff & Natalia Trofimenko, 2013. "World Market Access of Emerging-Market Firms: the Role of Foreign Ownership and Access to External Finance," Kiel Working Papers 1848, Kiel Institute for the World Economy.
  2. Bianka Dettmer, 2012. "Business services outsourcing and economic growth: Evidence from a dynamic panel data approach," Jena Economic Research Papers, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics 2012-049, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  3. João Amador & Sónia Cabral, 2014. "Global Value Chains: Surveying Drivers, Measures and Impacts," Working Papers, Banco de Portugal, Economics and Research Department w201403, Banco de Portugal, Economics and Research Department.

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