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Global Sourcing

  • Antràs, Pol
  • Helpman, Elhanan

We present a North-South model of international trade in which differentiated products are developed in the North. Sectors are populated by final-good producers who differ in productivity levels. Based on productivity and sectoral characteristics, firms decide whether to integrate into the production of intermediate inputs or outsource them. In either case they have to decide from which country to source the inputs. Final-good producers and their suppliers must make relationship-specific investments, both in an integrated firm and in an arm’s-length relationship. We describe an equilibrium in which firms with different productivity levels choose different ownership structures and supplier locations, i.e., they choose different organizational forms. We then study the effects of within-sectoral heterogeneity and variations in industry characteristics on the relative prevalence of these organizational forms. The analysis sheds light on the structure of foreign trade within and across industries.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4170.

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Date of creation: Jan 2004
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Handle: RePEc:cpr:ceprdp:4170
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  1. Pol Antras, 2004. "Incomplete Contracts and the Product Cycle," Econometric Society 2004 North American Summer Meetings 62, Econometric Society.
  2. Pol Antràs, 2003. "Firms, Contracts, And Trade Structure," The Quarterly Journal of Economics, MIT Press, vol. 118(4), pages 1375-1418, November.
  3. David Hummels & Jun Ishii & Kei-Mu Yi, 1999. "The nature and growth of vertical specialization in world trade," Staff Reports 72, Federal Reserve Bank of New York.
  4. Marin, Dalia & Verdier, Thierry, 2003. "Globalization and the Empowerment of Talent," CEPR Discussion Papers 4129, C.E.P.R. Discussion Papers.
  5. Yeaple, Stephen & Helpman, Elhanan & Melitz, Marc, 2004. "Export versus FDI with Heterogeneous Firms," Scholarly Articles 3229098, Harvard University Department of Economics.
  6. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
  7. Robert E. Lipsey & Magnus Blomstrom & Eric D. Ramstetter, 1998. "Internationalized Production in World Output," NBER Chapters, in: Geography and Ownership as Bases for Economic Accounting, pages 83-138 National Bureau of Economic Research, Inc.
  8. Katharine G. Abraham & Susan K. Taylor, 1993. "Firms' Use of Outside Contractors: Theory and Evidence," NBER Working Papers 4468, National Bureau of Economic Research, Inc.
  9. Grossman, G.M. & Helpman, E., 2001. "Integration vs. Outsourcing in Industry Equilibrium," Papers 2001-7, Tel Aviv.
  10. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
  11. Elhanan Helpman & Gene M. Grossman, 2002. "Managerial Incentives and the International Organization of Production," NBER Working Papers 9403, National Bureau of Economic Research, Inc.
  12. Diego Puga & Daniel Trefler, 2002. "Knowledge Creation and Control in Organizations," NBER Working Papers 9121, National Bureau of Economic Research, Inc.
  13. Robert C. Feenstra, 1998. "Integration of Trade and Disintegration of Production in the Global Economy," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 31-50, Fall.
  14. Oliver Hart & John Moore, 1998. "Foundations of incomplete contracts," LSE Research Online Documents on Economics 19354, London School of Economics and Political Science, LSE Library.
  15. repec:rus:hseeco:122439 is not listed on IDEAS
  16. Segal, Ilya, 1999. "Complexity and Renegotiation: A Foundation for Incomplete Contracts," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 57-82, January.
  17. Holmstrom, Bengt & Milgrom, Paul, 1994. "The Firm as an Incentive System," American Economic Review, American Economic Association, vol. 84(4), pages 972-91, September.
  18. Robert C. Feenstra & Gordon H. Hanson, 1996. "Globalization, Outsourcing, and Wage Inequality," NBER Working Papers 5424, National Bureau of Economic Research, Inc.
  19. Jose Campa & Linda S. Goldberg, 1997. "The Evolving External Orientation of Manufacturing Industries: Evidence from Four Countries," NBER Working Papers 5919, National Bureau of Economic Research, Inc.
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