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

  • Debaere, Peter


    (University of Virginia)

  • Görg, Holger


    (Kiel Institute for the World Economy)

  • Raff, Horst


    (Kiel Institute for the World Economy)

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 Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4729.

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Length: 39 pages
Date of creation: Jan 2010
Date of revision:
Publication status: published in: Canadian Journal of Economics, 2013, 46 (1), 78-102
Handle: RePEc:iza:izadps:dp4729
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  1. 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.
  2. Marc J. Melitz & Gianmarco I.P. Ottaviano, 2005. "Market Size, Trade, and Productivity," NBER Working Papers 11393, National Bureau of Economic Research, Inc.
  3. Pol Antras & Elhanan Helpman, 2003. "Global Sourcing," Harvard Institute of Economic Research Working Papers 2005, Harvard - Institute of Economic Research.
  4. Elhanan Helpman, 2006. "Trade, FDI, and the Organization of Firms," Harvard Institute of Economic Research Working Papers 2118, Harvard - Institute of Economic Research.
  5. Deardorff, Alan V, 2001. "International Provision of Trade Services, Trade, and Fragmentation," Review of International Economics, Wiley Blackwell, vol. 9(2), pages 233-48, May.
  6. 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.
  7. 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.
  8. 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.
  9. 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.
  10. Breinlich, Holger & Criscuolo, Chiara, 2010. "International Trade in Services: A Portrait of Importers and Exporters," CEPR Discussion Papers 7837, C.E.P.R. Discussion Papers.
  11. 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.
  12. 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.
  13. repec:hrv:faseco:4784029 is not listed on IDEAS
  14. 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.
  15. 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.
  16. Horst Raff & Nicolas Schmitt, 2009. "Imports, Pass-Through, and the Structure of Retail Markets," CESifo Working Paper Series 2817, CESifo Group Munich.
  17. 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.
  18. 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).
  19. 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.
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