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Technology and Production Fragmentation: Domestic versus Foreign Sourcing

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  • Teresa C. Fort

Abstract

This paper provides direct empirical evidence on the relationship between technology and firms' global sourcing strategies. Using new data on U.S. firms' decisions to contract for manufacturing services from domestic or foreign suppliers, I show that a firm's adoption of communication technology between 2002 to 2007 is associated with a 3.1 point increase in its probability of fragmentation. The effect of firm technology also differs significantly across industries; in 2007, it is 20 percent higher, relative to the mean, in industries with production specifications that are easier to codify in an electronic format. These patterns suggest that technology lowers coordination costs, though its effect is disproportionately higher for domestic rather than foreign sourcing. The larger impact on domestic fragmentation highlights its importance as an alternative to offshoring, and can be explained by complementarities between technology and worker skill. High technology firms and industries are more likely to source from high human capital countries, and the differential impact of technology across industries is strongly increasing in country human capital.

Suggested Citation

  • Teresa C. Fort, 2016. "Technology and Production Fragmentation: Domestic versus Foreign Sourcing," NBER Working Papers 22550, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:22550
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    References listed on IDEAS

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    1. Arnaud Costinot & Jonathan Vogel & Su Wang, 2013. "An Elementary Theory of Global Supply Chains," Review of Economic Studies, Oxford University Press, vol. 80(1), pages 109-144.
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    7. Pol Antràs & Teresa C. Fort & Felix Tintelnot, 2017. "The Margins of Global Sourcing: Theory and Evidence from US Firms," American Economic Review, American Economic Association, vol. 107(9), pages 2514-2564, September.
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    Cited by:

    1. Réka Juhász & Claudia Steinwender, 2018. "Spinning the Web: The Impact of ICT on Trade in Intermediates and Technology Diffusion," NBER Working Papers 24590, National Bureau of Economic Research, Inc.
    2. Clément Magouyres & Thierry Mayer & Clément Mazet, 2019. "Technology-Induced Trade Shocks? Evidence from Broadband Expansion in France," Sciences Po publications 2019-10, Sciences Po.
    3. Artuc,Erhan & Christiaensen,Luc & Winkler,Hernan Jorge, 2019. "Does Automation in Rich Countries Hurt Developing Ones? : Evidence from the U.S. and Mexico," Policy Research Working Paper Series 8741, The World Bank.
    4. Fariha Kamal, 2018. "A Portrait of U.S. Factoryless Goods Producers," NBER Chapters,in: The Challenges of Globalization in the Measurement of National Accounts National Bureau of Economic Research, Inc.
    5. Alejandro Micco, 2019. "Automation, Labor Markets, and Trade," Working Papers wp486, University of Chile, Department of Economics.
    6. Teresa C. Fort & Justin R. Pierce & Peter K. Schott, 2018. "New Perspectives on the Decline of US Manufacturing Employment," Journal of Economic Perspectives, American Economic Association, vol. 32(2), pages 47-72, Spring.
    7. Katharine Abraham & John Haltiwanger & Kristin Sandusky & James Spletzer, 2017. "Measuring the Gig Economy: Current Knowledge and Open Issues," NBER Chapters,in: Measuring and Accounting for Innovation in the 21st Century National Bureau of Economic Research, Inc.
    8. repec:eee:reveco:v:54:y:2018:i:c:p:244-261 is not listed on IDEAS
    9. Shang-Jin Wei & Yinxi Xie, 2018. "The Wedge of the Century: Understanding a Divergence between CPI and PPI Inflation Measures," NBER Working Papers 24319, National Bureau of Economic Research, Inc.
    10. Bosker, Maarten & Westbrock, Bastian, 2018. "The network origins of the gains from trade," CEPR Discussion Papers 13285, C.E.P.R. Discussion Papers.

    More about this item

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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