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The Margins of Global Sourcing: Theory and Evidence from U.S. Firms

  • Pol Antràs
  • Teresa C. Fort
  • Felix Tintelnot

This paper studies the extensive and intensive margins of firms' global sourcing decisions. We develop a quantifiable multi-country sourcing model in which heterogeneous firms self-select into importing based on their productivity and country-specific variables. The model delivers a simple closed-form solution for firm profits as a function of the countries from which a firm imports, as well as those countries' characteristics. In contrast to canonical models of exporting in which firm profits are additively separable across exporting markets, we show that global sourcing decisions naturally interact through the firm's cost function. In particular, the marginal change in profits from adding a country to the firm's set of potential sourcing locations depends on the number and characteristics of other countries in the set. Still, under plausible parametric restrictions, selection into importing features complementarity across markets and firms' sourcing strategies follow a hierarchical structure analogous to the one predicted by exporting models. Our quantitative analysis exploits these complementarities to distinguish between a country's potential as a marginal cost-reducing source of inputs and the fixed cost associated with sourcing from this country. Counterfactual exercises suggest that a shock to the potential benefits of sourcing from a country leads to significant and heterogeneous changes in sourcing across both countries and firms.

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File URL: http://scholar.harvard.edu/antras/node/154856
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Paper provided by Harvard University OpenScholar in its series Working Paper with number 154856.

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Date of creation: Jan 2014
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Handle: RePEc:qsh:wpaper:154856
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  1. Robert C. Feenstra & J. Bradford Jensen, 2012. "Evaluating Estimates of Materials Offshoring from U.S. Manufacturing," NBER Working Papers 17916, National Bureau of Economic Research, Inc.
  2. Francis Kramarz & Jonathan Eaton & Samuel Kortum, 2005. "An Anatomy of International Trade: Evidence from French Firms," 2005 Meeting Papers 197, Society for Economic Dynamics.
  3. Robert C. Johnson & Guillermo Noguera, 2012. "Fragmentation and Trade in Value Added over Four Decades," NBER Working Papers 18186, National Bureau of Economic Research, Inc.
  4. Mary Amiti & Jozef Konings, 2005. "Trade Liberalization, Intermediate Inputs, and Productivity; Evidence From Indonesia," IMF Working Papers 05/146, International Monetary Fund.
  5. Bernardo S. Blum & Sebastian Claro & Ignatius Horstmann, 2010. "Facts and Figures on Intermediated Trade," American Economic Review, American Economic Association, vol. 100(2), pages 419-23, May.
  6. Panle Jia, 2008. "What Happens When Wal-Mart Comes to Town: An Empirical Analysis of the Discount Retailing Industry," Econometrica, Econometric Society, vol. 76(6), pages 1263-1316, November.
  7. Andrew B. Bernard & Teresa C. Fort, 2013. "Factoryless Goods Producers in the US," Working Papers 13-46, Center for Economic Studies, U.S. Census Bureau.
  8. Stefania Garetto, 2013. "Input Sourcing and Multinational Production," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(2), pages 118-51, April.
  9. George S Olley & Ariel Pakes, 1992. "The Dynamics Of Productivity In The Telecommunications Equipment Industry," Working Papers 92-2, Center for Economic Studies, U.S. Census Bureau.
  10. Andrew B. Bernard & Andreas Moxnes & Karen Helene Ulltveit-Moe, 2014. "Two-Sided Heterogeneity and Trade," NBER Working Papers 20136, National Bureau of Economic Research, Inc.
  11. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2007. "Estimating Trade Flows: Trading Partners and Trading Volumes," NBER Working Papers 12927, National Bureau of Economic Research, Inc.
  12. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output Per Worker Than Others?," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 83-116, February.
  13. Robert J. Barro & Jong-Wha Lee, 2010. "A New Data Set of Educational Attainment in the World, 1950-2010," NBER Working Papers 15902, National Bureau of Economic Research, Inc.
  14. Natalia Ramondo & Andr�s Rodr�guez-Clare, 2013. "Trade, Multinational Production, and the Gains from Openness," Journal of Political Economy, University of Chicago Press, vol. 121(2), pages 273 - 322.
  15. 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.
  16. Ananth Ramanarayanan, 2012. "Imported Inputs and the Gains from Trade," 2012 Meeting Papers 612, Society for Economic Dynamics.
  17. Arnaud Costinot & Andres Rodriguez-Clare & Costas Arkolakis, 2010. "New Trade Models, Same Old Gains?," 2010 Meeting Papers 433, Society for Economic Dynamics.
  18. Peter Arendorf Bache & Anders Laugesen, 2013. "Monotone Comparative Statics for the Industry Composition," Economics Working Papers 2013-10, School of Economics and Management, University of Aarhus.
  19. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
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