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International Sourcing, Product Complexity and Intellectual Property Rights

Author

Listed:
  • Alireza Naghavi

    (Dipartimento di Scienze Economiche, University of Bologna and Fondazione Eni Enrico Mattei)

  • Julia Spies

    (Institute for Applied Economic Research (IAW) and Fondazione Eni Enrico Mattei)

  • Farid Toubal

    (University of Angers, Paris School of Economics and CEPII)

Abstract

In this paper, we propose the technological complexity of a product and the level of Intellectual Property Rights (IPRs) protection to be the co-determinants of the mode through which multinational firms purchase their goods. We study the choice between intra-firm trade and outsourcing given heterogeneity at the product- (complexity), firm- (productivity) and country- (IPRs) level. Our findings suggest that the above three dimensions of heterogeneity are crucial for complex goods, where firms face a trade-off between higher marginal costs in the case of trade with an affiliate and higher imitation risks in the case of sourcing from an independent supplier. We test these predictions by combining data from a French firm-level survey on the mode choice for each transaction with a newly developed complexity measure at the product-level. Our fractional logit estimations confirm the proposition that although firms are generally reluctant to source highly complex goods from outside the firm’s boundaries, they do so when a strong IPR regime in the host country guarantees the protection of their technology.

Suggested Citation

  • Alireza Naghavi & Julia Spies & Farid Toubal, 2011. "International Sourcing, Product Complexity and Intellectual Property Rights," Working Papers 2011.78, Fondazione Eni Enrico Mattei.
  • Handle: RePEc:fem:femwpa:2011.78
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Massimiliano Bratti & Giulia Felice, 2012. "Buyer-Supplier Relationships, Internationalization and Product Innovation," Development Working Papers 327, Centro Studi Luca d'Agliano, University of Milano, revised 13 Nov 2012.
    2. Sebastian Benz, 2014. "Essays on Offshoring, Wage Inequality and Innovation," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 56.
    3. Juan S. Blyde, 2012. "Contracting Institutions and the Insertion of LAC in International Production Networks," IDB Publications (Working Papers) 4035, Inter-American Development Bank.

    More about this item

    Keywords

    Sourcing Decision; Product Complexity; Intellectual Property Rights; Fractional Logit Estimation;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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