Working Paper: CEPR ID: DP4170
Authors: Pol Antràs; Elhanan Helpman
Abstract: We present a North-South model of international trade in which differentiated products are developed in the North. Sectors are populated by final-good producers who differ in productivity levels. Based on productivity and sectoral characteristics, firms decide whether to integrate into the production of intermediate inputs or outsource them. In either case they have to decide from which country to source the inputs. Final-good producers and their suppliers must make relationship-specific investments, both in an integrated firm and in an arm?s-length relationship. We describe an equilibrium in which firms with different productivity levels choose different ownership structures and supplier locations, i.e., they choose different organizational forms. We then study the effects of within-sectoral heterogeneity and variations in industry characteristics on the relative prevalence of these organizational forms. The analysis sheds light on the structure of foreign trade within and across industries.
Keywords: Imperfect contracting; Multinational firms; Property rights; Trade in intermediate inputs
JEL Codes: D23; F12; F14; F23; L11; L22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| productivity levels (O49) | ownership structures (G32) |
| productivity levels (O49) | supplier locations (L81) |
| wage gap (J31) | organizational forms (L22) |
| trading costs (F12) | organizational forms (L22) |
| productivity dispersion (O49) | organizational forms (L22) |
| headquarter intensity (R38) | integration vs outsourcing (L24) |
| high-productivity firms (D22) | integration (F15) |
| low-productivity firms (D22) | outsourcing (L24) |
| low headquarter intensity (R38) | no firms integrate (L29) |
| high headquarter intensity (R38) | integration is more prevalent (F15) |