Advanced Search
MyIDEAS: Login to save this paper or follow this series

The determinants of vertical integration in export processing: theory and evidence from China

Contents:

Author Info

  • Ana Fernandes
  • Heiwai Tang

Abstract

Using detailed product-level export data for China and a variant of the Antràs and Helpman (2004) model that includes investments in component search, we examine the sectoral determinants of foreign direct investment (FDI) versus foreign outsourcing in export processing trade. We exploit the coexistence of two regulatory export processing regimes in China, which specify who owns and controls the imported components for export processing. We find that in the regime that Chinese plants own the imported components, the share of exports from vertically integrated plants is increasing in the intensity of headquarter inputs across sectors, and is decreasing in the contractibility of inputs. These results are consistent with the property- rights theory of intra-firm trade. However, in the regime that foreign firms own the imported components, no significant relationship is found between the prevalence of vertical integration, headquarter intensity and input contractibility across sectors. The positive relationship between productivity dispersion and the export share of integrated plants across sectors, as suggested by the existing literature, is found only in the regime that foreign firms own the imported components. These results are consistent with our model, which considers ownership of imported components as an alternative to asset ownership to alleviate the hold-up problem by the export-processing plant.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://eprints.lse.ac.uk/28728/
File Function: Open access version.
Download Restriction: no

Bibliographic Info

Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 28728.

as in new window
Length: 40 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:ehl:lserod:28728

Contact details of provider:
Postal: LSE Library Portugal Street London, WC2A 2HD, U.K.
Phone: +44 (020) 7405 7686
Web page: http://www.lse.ac.uk/
More information through EDIRC

Related research

Keywords: Intrafirm trade; vertical integration; export processing; outsourcing;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Antras, Pol, 2005. "Incomplete Contracts and the Product Cycle," Scholarly Articles 3196324, Harvard University Department of Economics.
  2. Bernard, Andrew & Jensen, J Bradford & Redding, Stephen J & Schott, Peter, 2007. "Firms in International Trade," CEPR Discussion Papers 6277, C.E.P.R. Discussion Papers.
  3. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
  4. Pol Antràs, 2003. "Firms, Contracts, and Trade Structure," NBER Working Papers 9740, National Bureau of Economic Research, Inc.
  5. Nathan Nunn, 2005. "Relationship Specificity, Incomplete Contracts and the Pattern of Trade," International Trade 0512018, EconWPA.
  6. 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.
  7. Andrei A. Levchenko, 2004. "Institutional Quality and International Trade," IMF Working Papers 04/231, International Monetary Fund.
  8. Gene M. Grossman & Elhanan Helpman, 2002. "Outsourcing versus FDI in Industry Equilibrium?," Harvard Institute of Economic Research Working Papers 1965, Harvard - Institute of Economic Research.
  9. Helpman, Elhanan & Antras, Pol, 2004. "Global Sourcing," Scholarly Articles 4784029, Harvard University Department of Economics.
  10. Robert C. Feenstra & Gordon H. Hanson, 2005. "Ownership and Control in Outsourcing to China: Estimating the Property-Rights Theory of the Firm," The Quarterly Journal of Economics, MIT Press, vol. 120(2), pages 729-761, May.
  11. Ornelas, Emanuel & Turner, John L., 2010. "Protection and International Sourcing," CEPR Discussion Papers 8070, C.E.P.R. Discussion Papers.
  12. Pol Antras & Elhanan Helpman, 2003. "Global Sourcing," Harvard Institute of Economic Research Working Papers 2005, Harvard - Institute of Economic Research.
  13. Corcos, Gregory & Irac, Delphine & Mion, Giordano & Verdier, Thierry, 2009. "The Determinants of Intra-Firm Trade," CEPR Discussion Papers 7530, C.E.P.R. Discussion Papers.
  14. 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 19655, London School of Economics and Political Science, LSE Library.
  15. Philippe Aghion & Jean Tirole, 1994. "Normal and Real Authority in Organizations," Working papers 94-13, Massachusetts Institute of Technology (MIT), Department of Economics.
  16. John McLaren, 2000. ""Globalization" and Vertical Structure," American Economic Review, American Economic Association, vol. 90(5), pages 1239-1254, December.
  17. John Romalis, 2004. "Factor Proportions and the Structure of Commodity Trade," American Economic Review, American Economic Association, vol. 94(1), pages 67-97, March.
  18. Paola Conconi & Patrick Legros & Andrew F. Newman, 2008. "Trade Liberalization and Organizational Choice," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-172, Boston University - Department of Economics.
  19. Eric J. Bartelsman & Wayne Gray, 1996. "The NBER Manufacturing Productivity Database," NBER Technical Working Papers 0205, National Bureau of Economic Research, Inc.
  20. Timothy Dunne & J. Bradford Jensen & Mark J. Roberts, 2009. "Producer Dynamics: New Evidence from Micro Data," NBER Books, National Bureau of Economic Research, Inc, number dunn05-1, July.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Pol Antràs, 2011. "Grossman-Hart (1986) Goes Global: Incomplete Contracts, Property Rights, and the International Organization of Production," NBER Working Papers 17470, National Bureau of Economic Research, Inc.
  2. Antras, Pol, 2014. "Grossman-Hart (1986) Goes Global: Incomplete Contracts, Property Rights, and the International Organization of Production," Scholarly Articles 12220386, Harvard University Department of Economics.
  3. Ana Fernandes & Heiwai Tang, 2012. "Learning from Neighbors’ Export Activities: Evidence from Exporters’ Survival," Development Working Papers 337, Centro Studi Luca d\'Agliano, University of Milano, revised 16 Jul 2012.
  4. Sergey Mityakov & Heiwai Tang & Kevin K. Tsui, 2012. "InternationalPolitics and Import Diversification in the Second Wave of Globalization," Discussion Papers Series, Department of Economics, Tufts University 0770, Department of Economics, Tufts University.
  5. Heiwai Tang & Yifan Zhang, 2011. "Exchange Rates and the Margins of Trade: Evidence from Chinese Exporters," Working Papers 392011, Hong Kong Institute for Monetary Research.
  6. Debaere, Peter & Lee, Hongshik & Lee, Joonhyung, 2013. "Language, ethnicity and intrafirm trade," Journal of Development Economics, Elsevier, vol. 103(C), pages 244-253.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:ehl:lserod:28728. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lucy Ayre).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.