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

Author

Listed:
  • Peter Debaere
  • Holger Görg
  • Horst Raff

Abstract

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 monopolitic-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 firmÄs 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

Suggested Citation

  • Peter Debaere & Holger Görg & Horst Raff, 2010. "Greasing the Wheels of International Commerce: How Services Facilitate Firms' International Sourcing," Kiel Working Papers 1591, Kiel Institute for the World Economy.
  • Handle: RePEc:kie:kieliw:1591
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    File URL: https://www.ifw-members.ifw-kiel.de/publications/greasing-the-wheels-of-international-commerce-how-services-facilitate-firms-international-sourcing/greasing-the-wheels-of-international-commerce-how-services-facilitate-firms-international-sourcing
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    More about this item

    Keywords

    international trade; services; off-shoring; supply chain management; firm heterogeneity;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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