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Global Sourcing of Complex Production Processes

  • Christian Schwarz
  • Jens Suedekum

We develop a theory of a firm in an incomplete contracts environment which decides on its complexity, organization, and global scale. Specifically, the firm decides i) how thinly it wants to slice its production process by choosing the mass of symmetric intermediate inputs that are simultaneously combined to a final product, ii) if the supplier of each component is an external contractor or an integrated affiliate, and iii) if that component is offshored to a foreign country. We also consider the case of asymmetric inputs. Our model leads to a rich set of novel predictions about the structure of multinational firms that are consistent with stylized facts from the recent empirical literature.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3559.

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Date of creation: 2011
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Handle: RePEc:ces:ceswps:_3559
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  1. Su Wang & Jonathan Vogel & Arnaud Costinot, 2011. "An Elementary Theory of Global Supply Chains," 2011 Meeting Papers 95, Society for Economic Dynamics.
  2. Daron Acemoglu & Pol Antràs & Elhanan Helpman, 2007. "Contracts and Technology Adoption," American Economic Review, American Economic Association, vol. 97(3), pages 916-943, June.
  3. 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.
  4. 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.
  5. Pol Antràs, 2003. "Firms, Contracts, And Trade Structure," The Quarterly Journal of Economics, MIT Press, vol. 118(4), pages 1375-1418, November.
  6. Defever, Fabrice & Toubal, Farid, 2011. "Productivity, Relationship-Specific Inputs and the Sourcing Modes of Multinationals," CEPR Discussion Papers 8656, C.E.P.R. Discussion Papers.
  7. Verena Nowak & Christian Schwarz & Jens Suedekum, 2012. "On the Organizational Structure of Multinational Firms - Which Sourcing Mode for which Input?," CESifo Working Paper Series 3823, CESifo Group Munich.
  8. Du, Julan & Lu, Yi & Tao, Zhigang, 2009. "Bi-sourcing in the global economy," Journal of International Economics, Elsevier, vol. 77(2), pages 215-222, April.
  9. Pol Antràs & Elhanan Helpman, 2003. "Global Sourcing," NBER Working Papers 10082, National Bureau of Economic Research, Inc.
  10. Rossi-Hansberg, Esteban & Antras, Pol, 2009. "Organizations and Trade," Scholarly Articles 3199064, Harvard University Department of Economics.
  11. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2012. "The Empirics of Firm Heterogeneity and International Trade," Working Papers 12-18, Center for Economic Studies, U.S. Census Bureau.
  12. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
  13. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2010. "Intrafirm Trade and Product Contractibility," American Economic Review, American Economic Association, vol. 100(2), pages 444-48, May.
  14. Laura Alfaro & Andrew Charlton, 2009. "Intra-industry Foreign Direct Investment," American Economic Review, American Economic Association, vol. 99(5), pages 2096-2119, December.
  15. Hart, Oliver D. & Moore, John, 1990. "Property Rights and the Nature of the Firm," Scholarly Articles 3448675, Harvard University Department of Economics.
  16. Robert C. Feenstra & Gordon H. Hanson, 2005. "Ownership and Control in Outsourcing to China: Estimating the Property-Rights Theory of the Firm," The Quarterly Journal of Economics, MIT Press, vol. 120(2), pages 729-761, May.
  17. Elhanan Helpman, 2006. "Trade, FDI, and the Organization of Firms," Harvard Institute of Economic Research Working Papers 2118, Harvard - Institute of Economic Research.
  18. Baldwin, Richard & Venables, Anthony J., 2013. "Spiders and snakes: Offshoring and agglomeration in the global economy," Journal of International Economics, Elsevier, vol. 90(2), pages 245-254.
  19. Carlo Altomonte & Armando Rungi, 2013. "Business Groups as Hierarchies of Firms: Determinants of Vertical Integration and Performance," Working Papers 2013.33, Fondazione Eni Enrico Mattei.
  20. 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.
  21. Gregory Corcos & Delphine M. Irac & Giordano Mion & Thierry Verdier, 2008. "The Determinants of Intra-Firm Trade," Development Working Papers 267, Centro Studi Luca d\'Agliano, University of Milano.
  22. José C. Fariñas & Ana Martín-Marcos, 2010. "Foreign Sourcing and Productivity: Evidence at the Firm Level," The World Economy, Wiley Blackwell, vol. 33(3), pages 482-506, 03.
  23. Pol Antras & Davin Chor, 2012. "Organizing the Global Value Chain," Working Papers 25-2012, Singapore Management University, School of Economics.
  24. Baldwin, Richard, 2009. "Integration of the North American economy and new-paradigm globalisation," CEPR Discussion Papers 7523, C.E.P.R. Discussion Papers.
  25. Oliver Hart & Sanford Grossman, 1985. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Working papers 372, Massachusetts Institute of Technology (MIT), Department of Economics.
  26. Fabrice Defever & Farid Toubal, 2007. "Productivity and the sourcing modes of multinational firms: evidence from French firm-level data," LSE Research Online Documents on Economics 19655, London School of Economics and Political Science, LSE Library.
  27. Stefano Federico, 2010. "Outsourcing versus integration at home or abroad and firm heterogeneity," Empirica, Springer, vol. 37(1), pages 47-63, February.
  28. Gene M. Grossman & Esteban Rossi-Hansberg, 2006. "Trading Tasks: A Simple Theory of Offshoring," NBER Working Papers 12721, National Bureau of Economic Research, Inc.
  29. Liza Jabbour, 2012. "‘Slicing the Value Chain’ Internationally: Empirical Evidence on the Offshoring Strategy by French Firms," The World Economy, Wiley Blackwell, vol. 35(11), pages 1417-1447, November.
  30. Wilhelm Kohler & Marcel Smolka, 2009. "Global Sourcing Decisions and Firm Productivity: Evidence from Spain," CESifo Working Paper Series 2903, CESifo Group Munich.
  31. Van Biesebroeck, Johannes & Zhang, Lijun, 2011. "Global Sourcing of a Complex Good," CEPR Discussion Papers 8614, C.E.P.R. Discussion Papers.
  32. repec:hrv:faseco:4784029 is not listed on IDEAS
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  34. Stefano Federico, 2010. "Outsourcing versus Integration at Home or Abroad," Temi di discussione (Economic working papers) 742, Bank of Italy, Economic Research and International Relations Area.
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