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Global Sourcing under Imperfect Capital Markets

  • Juan Carluccio

    (Banque de France and Paris School of Economics)

  • Thibault Fally

    (University of Colorado at Boulder)

We develop a simple model to study the interactions between a supplier's financial constraints and contract incompleteness in a vertical relationship. Applied to the analysis of multinational firms' sourcing strategies, the model predicts: (i) that complex and specific inputs are more likely to be sourced from financially developed countries and (ii) that multinationals are more likely to integrate suppliers located in countries with poor financial institutions, especially when trade involves complex goods. These predictions are examined and validated using firm-level trade data on multinational firms with operations in France. © 2012 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 94 (2012)
Issue (Month): 3 (August)
Pages: 740-763

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Handle: RePEc:tpr:restat:v:94:y:2012:i:3:p:740-763
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