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Productivity and the Sourcing Modes of Multinational Firms: Evidence from French Firm-Level Data

  • Fabrice Defever
  • Farid Toubal

We investigate the role of a firm's total factor productivity in its decision to import from their affiliates rather than from independent input suppliers. We propose a slightly modified version of the Antràs and Helpman (2004) model. We assume higher fixed costs under outsourcing and a firm-specific production function. We use detailed French firm-level data that provides a geographical breakdown of French firms' import at product level and their sourcing modes in 1999. We find strong empirical support for the theoretical predictions of the model. In particular, high-productivity firms that have a production process intensive in suppliers' inputs source their inputs through independent foreign suppliers.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0842.

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Date of creation: Dec 2007
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Handle: RePEc:cep:cepdps:dp0842
Contact details of provider: Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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  1. Werner Antweiler & Daniel Trefler, 2002. "Increasing Returns and All That: A View from Trade," American Economic Review, American Economic Association, vol. 92(1), pages 93-119, March.
  2. Elhanan Helpman, 2006. "Trade, FDI, and the Organization of Firms," Journal of Economic Literature, American Economic Association, vol. 44(3), pages 589-630, September.
  3. Hart, Oliver D. & Moore, John, 1990. "Property Rights and the Nature of the Firm," Scholarly Articles 3448675, Harvard University Department of Economics.
  4. Edward C. Norton & Hua Wang & Chunrong Ai, 2004. "Computing interaction effects and standard errors in logit and probit models," Stata Journal, StataCorp LP, vol. 4(2), pages 154-167, June.
  5. Pol Antras & Elhanan Helpman, 2003. "Global Sourcing," Harvard Institute of Economic Research Working Papers 2005, Harvard - Institute of Economic Research.
  6. Lu�s M B Cabral & Jos� Mata, 2003. "On the Evolution of the Firm Size Distribution: Facts and Theory," American Economic Review, American Economic Association, vol. 93(4), pages 1075-1090, September.
  7. Gene M. Grossman & Elhanan Helpman, 2002. "Integration versus Outsourcing in Industry Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 117(1), pages 85-120.
  8. Pol Antras, 2004. "Incomplete Contracts and the Product Cycle," 2004 Meeting Papers 19, Society for Economic Dynamics.
  9. Gene M. Grossman & Elhanan Helpman, 2002. "Outsourcing versus FDI in Industry Equilibrium," NBER Working Papers 9300, National Bureau of Economic Research, Inc.
  10. 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.
  11. Barbara J. Spencer, 2005. "International Outsourcing and Incomplete Contracts," NBER Working Papers 11418, National Bureau of Economic Research, Inc.
  12. John McLaren, 2000. ""Globalization" and Vertical Structure," American Economic Review, American Economic Association, vol. 90(5), pages 1239-1254, December.
  13. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
  14. Grossman, Sanford J. & Hart, Oliver D., 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Scholarly Articles 3450060, Harvard University Department of Economics.
  15. Eiichi Tomiura, 2005. "Foreign Outsourcing, Exporting, and FDI: A Productivity Comparison at the Firm Level," Discussion Paper Series 168, Research Institute for Economics & Business Administration, Kobe University.
  16. Pol Antràs, 2003. "Firms, Contracts, and Trade Structure," NBER Working Papers 9740, National Bureau of Economic Research, Inc.
  17. Stephen Ross Yeaple, 2006. "Offshoring, Foreign Direct Investment, and the Structure of U.S. Trade," Journal of the European Economic Association, MIT Press, vol. 4(2-3), pages 602-611, 04-05.
  18. repec:hrv:faseco:4784029 is not listed on IDEAS
  19. Tomiura, Eiichi, 2005. "Foreign outsourcing and firm-level characteristics: Evidence from Japanese manufacturers," Journal of the Japanese and International Economies, Elsevier, vol. 19(2), pages 255-271, June.
  20. Nathan Nunn, 2007. "Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade," The Quarterly Journal of Economics, Oxford University Press, vol. 122(2), pages 569-600.
  21. John Sutton, 1997. "Gibrat's Legacy," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 40-59, March.
  22. Ai, Chunrong & Norton, Edward C., 2003. "Interaction terms in logit and probit models," Economics Letters, Elsevier, vol. 80(1), pages 123-129, July.
  23. Gene M. Grossman & Elhanan Helpman & Adam Szeidl, 2005. "Complementarities between Outsourcing and Foreign Sourcing," American Economic Review, American Economic Association, vol. 95(2), pages 19-24, May.
  24. Porter, Michael E, 1974. "Consumer Behavior, Retailer Power and Market Performance in Consumer Goods Industries," The Review of Economics and Statistics, MIT Press, vol. 56(4), pages 419-36, November.
  25. S. Raspiller & P. Sillard, 2004. "Affiliating versus Subcontracting: the Case of Multinationals," Documents de Travail de la DESE - Working Papers of the DESE g2004-09, Institut National de la Statistique et des Etudes Economiques, DESE.
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