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

  • Peter Debaere
  • Holger Görg
  • Horst Raff

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 University of Nottingham, GEP in its series Discussion Papers with number 10/01.

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Handle: RePEc:not:notgep:10/01
Contact details of provider: Postal: School of Economics University of Nottingham University Park Nottingham NG7 2RD
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  1. 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).
  2. 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.
  3. Elhanan Helpman, 2006. "Trade, FDI, and the Organization of Firms," Harvard Institute of Economic Research Working Papers 2118, Harvard - Institute of Economic Research.
  4. Robert C. Feenstra, . "Integration Of Trade And Disintegration Of Production In The Global Economy," Department of Economics 98-06, California Davis - Department of Economics.
  5. Pol Antràs & Elhanan Helpman, 2003. "Global Sourcing," NBER Working Papers 10082, National Bureau of Economic Research, Inc.
  6. 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.
  7. 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.
  8. Horst Raff & Nicolas Schmitt, 2009. "Imports, Pass-Through, and the Structure of Retail Markets," CESifo Working Paper Series 2817, CESifo Group Munich.
  9. Girma, Sourafel & Gorg, Holger & Strobl, Eric, 2004. "Exports, international investment, and plant performance: evidence from a non-parametric test," Economics Letters, Elsevier, vol. 83(3), pages 317-324, June.
  10. Marc J. Melitz & Gianmarco I. P. Ottaviano, 2008. "Market Size, Trade, and Productivity," Review of Economic Studies, Oxford University Press, vol. 75(1), pages 295-316.
  11. Deardorff, Alan V., 2001. "International provision of trade services, trade, and fragmentation," Policy Research Working Paper Series 2548, The World Bank.
  12. 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.
  13. Breinlich, Holger & Criscuolo, Chiara, 2011. "International trade in services: A portrait of importers and exporters," Journal of International Economics, Elsevier, vol. 84(2), pages 188-206, July.
  14. 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.
  15. 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.
  16. repec:hrv:faseco:4784029 is not listed on IDEAS
  17. 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.
  18. 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.
  19. 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.
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