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Greasing the Wheels of International Commerce: How Services Facilitate Firms' International Sourcing

  • Debaere, Peter
  • Görg, Holger
  • Raff, Horst

We use unique plant-level data to study the link between the local availability of services and the decision of manufacturing firms to source materials from abroad. To guide our empirical analysis we develop a monopolistic-competition model of the materials sourcing decisions of heterogeneous firms. The model generates predictions about how the intensity of international sourcing of materials depends on a firm's productivity and the availability of local services. These predictions are supported by the data. We find evidence that more productive manufacturing firms tend to have a higher ratio of imported materials to sales. In addition, we find evidence that services grease the wheels of international commerce: A greater availability of services across regions, industries and time increases a firm's foreign sourcing of materials relative to sales. Interestingly, this positive impact of local service availability on imports especially applies to stand-alone firms that, unlike multinationals, are less likely to rely on imported or internally provided services.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7675.

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Date of creation: Feb 2010
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Handle: RePEc:cpr:ceprdp:7675
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  1. Stephen S. Golub & Ronald W. Jones & Henryk Kierzkowski, 2007. "Globalization and Country-Specific Service Links," RCER Working Papers 532, University of Rochester - Center for Economic Research (RCER).
  2. Pol Antràs & Elhanan Helpman, 2003. "Global Sourcing," NBER Working Papers 10082, National Bureau of Economic Research, Inc.
  3. Elhanan Helpman, 2006. "Trade, FDI, and the Organization of Firms," Journal of Economic Literature, American Economic Association, vol. 44(3), pages 589-630, September.
  4. Breinlich, Holger & Criscuolo, Chiara, 2011. "International trade in services: A portrait of importers and exporters," Journal of International Economics, Elsevier, vol. 84(2), pages 188-206, July.
  5. Deardorff, Alan V., 2001. "International provision of trade services, trade, and fragmentation," Policy Research Working Paper Series 2548, The World Bank.
  6. 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.
  7. Horst Raff & Nicolas Schmitt, 2009. "Imports, Pass-Through, and the Structure of Retail Markets," Kiel Working Papers 1556, Kiel Institute for the World Economy.
  8. Ottaviano, Gianmarco & Melitz, Marc, 2008. "Market Size, Trade, and Productivity," Scholarly Articles 3229096, Harvard University Department of Economics.
  9. Sourafel Girma & Holger Görg & Eric Strobl, 2003. "Exports, International Investment, and Plant Performance: Evidence from a Non-Parametric Test," Discussion Papers of DIW Berlin 379, DIW Berlin, German Institute for Economic Research.
  10. Stephen S. Golub & Ronald W. Jones & Henryk Kierzkowski, 2007. "Globalization and Country-Specific Service Links," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 10(2), pages 63-88.
  11. Kei-Mu Yi, 2003. "Can Vertical Specialization Explain the Growth of World Trade?," Journal of Political Economy, University of Chicago Press, vol. 111(1), pages 52-102, February.
  12. Van Long, Ngo & Riezman, Raymond & Soubeyran, Antoine, 2005. "Fragmentation and services," The North American Journal of Economics and Finance, Elsevier, vol. 16(1), pages 137-152, March.
  13. 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.
  14. Joseph F. Francois, 1990. "Trade in Producer Services and Returns Due to Specialization under Monopolistic Competition," Canadian Journal of Economics, Canadian Economics Association, vol. 23(1), pages 109-24, February.
  15. 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.
  16. Stephen S. Golub & Ronald W. Jones & Henryk Kierzkowski, 2007. "Globalization and Country-Specific Service Links," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 10(2), pages 63-88.
  17. repec:hrv:faseco:4784029 is not listed on IDEAS
  18. Stephen S. Golub, Ronald W. Jones, Henryk Kierzkowski, 2007. "Globalization and Country-Specific Service Links," IHEID Working Papers 05-2007, Economics Section, The Graduate Institute of International Studies.
  19. Ann E. Harrison & Brian J. Aitken, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, vol. 89(3), pages 605-618, June.
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