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Input Sourcing and Multinational Production

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  • Stefania Garetto

    (The University of Chicago)

Abstract

of imports and the degree of differentiation across inputs in a sector, for which I find strong support in the data. Moreover, imperfect competition establishes a link between FDI liberalization and optimal pricing: suppliers find optimal to reduce their prices in response to the possibility of insourced production (the “pro-competition effect” of multinationals). As a result, there is complementarity between trade and foreign investment. The model is calibrated to match aggregate U.S. trade data, and used to quantify the gains arising from vertical multinational production and intrafirm trade. The computed gains are small (about 1% of consumption per capita) but the model shows that further liberalization can increase them substantially.

Suggested Citation

  • Stefania Garetto, 2008. "Input Sourcing and Multinational Production," 2008 Meeting Papers 122, Society for Economic Dynamics.
  • Handle: RePEc:red:sed008:122
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    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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