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Global Sourcing

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  • Antras, Pol
  • Helpman, Elhanan

Abstract

We present a Northâ€South model of international trade in which differentiated products are developed in the North. Sectors are populated by finalâ€good producers who differ in productivity levels. On the basis of productivity and sectoral characteristics, firms decide whether to integrate into the production of intermediate inputs or outsource them. In either case they have to decide from which country to source the inputs. Finalâ€good producers and their suppliers must make relationshipâ€specific investments, both in an integrated firm and in an arm’sâ€length relationship. We describe an equilibrium in which firms with different productivity levels choose different ownership structures and supplier locations. We then study the effects of withinâ€sectoral heterogeneity and variations in industry characteristics on the relative prevalence of these organizational forms.

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Bibliographic Info

Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 3196327.

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Date of creation: 2004
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Publication status: Published in Journal of Political Economy
Handle: RePEc:hrv:faseco:3196327

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References

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  1. Katharine G. Abraham & Susan K. Taylor, 1993. "Firms' Use of Outside Contractors: Theory and Evidence," NBER Working Papers 4468, National Bureau of Economic Research, Inc.
  2. Diego Puga & Daniel Trefler, 2002. "Knowledge Creation and Control in Organizations," NBER Working Papers 9121, National Bureau of Economic Research, Inc.
  3. Grossman, Gene & Helpman, Elhanan, 2003. "Managerial Incentives and the International Organization of Production," CEPR Discussion Papers 3737, C.E.P.R. Discussion Papers.
  4. Pol Antràs, 2003. "Firms, Contracts, And Trade Structure," The Quarterly Journal of Economics, MIT Press, vol. 118(4), pages 1375-1418, November.
  5. Marin, Dalia & Verdier, Thierry, 2003. "Globalization and the Empowerment of Talent," Discussion Papers in Economics 268, University of Munich, Department of Economics.
  6. Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, vol. 54(1), pages 75-96, June.
  7. Grossman, G.M. & Helpman, E., 2001. "Integration vs. Outsourcing in Industry Equilibrium," Papers 2001-7, Tel Aviv.
  8. Grossman, Sanford J & Hart, Oliver, 1985. "The Cost and Benefits of Ownership: A Theory of Vertical and Lateral Integration," CEPR Discussion Papers 70, C.E.P.R. Discussion Papers.
  9. Lipsey, Robert E. & Blomström, Magnus & Ramstetter, Eric, 1995. "Internationalized Production in World Output," Working Paper Series in Economics and Finance 80, Stockholm School of Economics.
  10. Pol Antràs, 2003. "Incomplete Contracts and the Product Cycle," NBER Working Papers 9945, National Bureau of Economic Research, Inc.
  11. Robert Feenstra, 2003. "Integration Of Trade And Disintegration Of Production In The Global Economy," Working Papers 986, University of California, Davis, Department of Economics.
  12. Yeaple, Stephen & Helpman, Elhanan & Melitz, Marc, 2004. "Export versus FDI with Heterogeneous Firms," Scholarly Articles 3229098, Harvard University Department of Economics.
  13. Feenstra, Robert C & Hanson, Gordon H, 1996. "Globalization, Outsourcing, and Wage Inequality," American Economic Review, American Economic Association, vol. 86(2), pages 240-45, May.
  14. Oliver Hart & John Moore, 1998. "Foundations of Incomplete Contracts," Harvard Institute of Economic Research Working Papers 1846, Harvard - Institute of Economic Research.
  15. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
  16. Jose Campa & Linda S. Goldberg, 1997. "The Evolving External Orientation of Manufacturing Industries: Evidence from Four Countries," NBER Working Papers 5919, National Bureau of Economic Research, Inc.
  17. repec:rus:hseeco:122439 is not listed on IDEAS
  18. Segal, Ilya, 1999. "Complexity and Renegotiation: A Foundation for Incomplete Contracts," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 57-82, January.
  19. Holmstrom, Bengt & Milgrom, Paul, 1994. "The Firm as an Incentive System," American Economic Review, American Economic Association, vol. 84(4), pages 972-91, September.
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