Input Sourcing and Multinational Production
Abstractof imports and the degree of differentiation across inputs in a sector, for which I find strong support in the data. Moreover, imperfect competition establishes a link between FDI liberalization and optimal pricing: suppliers find optimal to reduce their prices in response to the possibility of insourced production (the “pro-competition effect” of multinationals). As a result, there is complementarity between trade and foreign investment. The model is calibrated to match aggregate U.S. trade data, and used to quantify the gains arising from vertical multinational production and intrafirm trade. The computed gains are small (about 1% of consumption per capita) but the model shows that further liberalization can increase them substantially.
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 122.
Date of creation: 2008
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Other versions of this item:
- Stefania Garetto, 2013. "Input Sourcing and Multinational Production," American Economic Journal: Macroeconomics, American Economic Association, American Economic Association, vol. 5(2), pages 118-51, April.
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
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