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Abstract

We present a North South model of international trade in which differentiated products are developed in the North. Sectors are populated by final-good producers who differ in productivity levels. Based on 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. Final-good producers and their suppliers must make relationship-specific investments, both in an integrated firm and in an arm's-length relationship. We describe an equilibrium in which firms with different productivity levels choose different ownership structures and supplier locations, i.e., they choose different organizational forms. We then study the effects of within-sectoral heterogeneity and variations in industry characteristics on the relative prevalence of these organizational forms. The analysis sheds light on the structure of foreign trade within and across industries.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10082.

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Date of creation: Nov 2003
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Handle: RePEc:nbr:nberwo:10082

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Find related papers by JEL classification:

• D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
• F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies

This paper has been announced in the following NEP Reports:

• NEP-ALL-2003-11-30 (All new papers)

References

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