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Global Sourcing of Complex Production Processes

  • Schwarz, Christian

    ()

    (University of Duisburg-Essen)

  • Suedekum, Jens

    ()

    (Heinrich Heine University Düsseldorf)

We develop a theory of a firm in an environment with incomplete contracts. The firm’s headquarter decides on the complexity, the organization, and the global scale of its production process. Specifically, it decides: i) on the mass of symmetric intermediate inputs that are part of the value chain, ii) if the supplier of each component is an external contractor or an integrated affiliate, and iii) if the supplier is offshored to a foreign low-wage country. Afterwards we consider a related scenario where the headquarter contracts with a given number of two asymmetric suppliers. Our model is consistent with several stylized facts from the recent literature that existing theories of multinational firms cannot account for.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5305.

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Length: 45 pages
Date of creation: Nov 2010
Date of revision:
Handle: RePEc:iza:izadps:dp5305
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  1. Gene M. Grossman & Esteban Rossi-Hansberg, 2006. "Trading Tasks: A Simple Theory of Offshoring," NBER Working Papers 12721, National Bureau of Economic Research, Inc.
  2. 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.
  3. Fabrice Defever & Farid Toubal, 2013. "Productivity, relationship-specific inputs and the sourcing modes of multinationals," PSE - Labex "OSE-Ouvrir la Science Economique" hal-00860203, HAL.
  4. Hart, Oliver D. & Moore, John, 1990. "Property Rights and the Nature of the Firm," Scholarly Articles 3448675, Harvard University Department of Economics.
  5. Laura Alfaro & Andrew Charlton, 2007. "Intra-Industry Foreign Direct Investment," NBER Working Papers 13447, National Bureau of Economic Research, Inc.
  6. Elhanan Helpman, 2006. "Trade, FDI, and the Organization of Firms," Journal of Economic Literature, American Economic Association, vol. 44(3), pages 589-630, September.
  7. Grossman, Sanford J & Hart, Oliver, 1985. "The Cost and Benefits of Ownership: A Theory of Vertical and Lateral Integration," CEPR Discussion Papers 70, C.E.P.R. Discussion Papers.
  8. Antràs, Pol & Chor, Davin, 2012. "Organizing the Global Value Chain," CEPR Discussion Papers 9018, C.E.P.R. Discussion Papers.
  9. 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.
  10. Arnaud Costinot & Jonathan E. Vogel & Su Wang, 2011. "An Elementary Theory of Global Supply Chains," CESifo Working Paper Series 3402, CESifo Group Munich.
  11. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2011. "The Empirics of Firm Heterogeneity and International Trade," CEP Discussion Papers dp1084, Centre for Economic Performance, LSE.
  12. Altomonte, Carlo & Rungi, Armando, 2013. "Business groups as hierarchies of firms: determinants of vertical integration and performance," Working Paper Series 1554, European Central Bank.
  13. Daron Acemoglu & Pol Antràs & Elhanan Helpman, 2007. "Contracts and Technology Adoption," American Economic Review, American Economic Association, vol. 97(3), pages 916-943, June.
  14. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  15. Van Biesebroeck, Johannes & Zhang, Lijun, 2014. "Interdependent product cycles for globally sourced intermediates," Journal of International Economics, Elsevier, vol. 94(1), pages 143-156.
  16. Antràs, Pol & Helpman, Elhanan, 2004. "Global Sourcing," CEPR Discussion Papers 4170, C.E.P.R. Discussion Papers.
  17. Stefano Federico, 2010. "Outsourcing versus integration at home or abroad and firm heterogeneity," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 37(1), pages 47-63, February.
  18. Pol Antràs, 2003. "Firms, Contracts, and Trade Structure," NBER Working Papers 9740, National Bureau of Economic Research, Inc.
  19. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2013. "Intra-Firm Trade And Product Contractibility," Working Papers 13-12, Center for Economic Studies, U.S. Census Bureau.
  20. Tomiura, Eiichi, 2007. "Foreign outsourcing, exporting, and FDI: A productivity comparison at the firm level," Journal of International Economics, Elsevier, vol. 72(1), pages 113-127, May.
  21. Wilhelm Kohler & Marcel Smolka, 2009. "Global Sourcing Decisions and Firm Productivity: Evidence from Spain," CESifo Working Paper Series 2903, CESifo Group Munich.
  22. Pol Antràs & Esteban Rossi-Hansberg, 2008. "Organizations and Trade," NBER Working Papers 14262, National Bureau of Economic Research, Inc.
  23. Richard Baldwin & Anthony Venables, 2010. "Spiders and snakes: offshoring and agglomeration in the global economy," NBER Working Papers 16611, National Bureau of Economic Research, Inc.
  24. 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.
  25. 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.
  26. Baldwin, Richard, 2009. "Integration of the North American economy and new-paradigm globalisation," CEPR Discussion Papers 7523, C.E.P.R. Discussion Papers.
  27. 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.
  28. 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.
  29. 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.
  30. 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.
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  32. repec:hrv:faseco:4784029 is not listed on IDEAS
  33. Fabrice Defever & Farid Toubal, 2007. "Productivity and the Sourcing Modes of Multinational Firms: Evidence from French Firm-Level Data," CEP Discussion Papers dp0842, Centre for Economic Performance, LSE.
  34. 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, Oxford University Press, vol. 120(2), pages 729-761.
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