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Global Sourcing under Imperfect Capital Markets

Author

Listed:
  • Juan Carluccio

    (Banque de France and Paris School of Economics)

  • Thibault Fally

    (University of Colorado at Boulder)

Abstract

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.

Suggested Citation

  • Juan Carluccio & Thibault Fally, 2012. "Global Sourcing under Imperfect Capital Markets," The Review of Economics and Statistics, MIT Press, vol. 94(3), pages 740-763, August.
    • Handle: RePEc:tpr:restat:v:94:y:2012:i:3:p:740-763
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    Keywords

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    JEL classification:

    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • F10 - International Economics - - Trade - - - General

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