Working Paper: CEPR ID: DP7675
Authors: Peter Debaere; Holger Görg; Horst Raff
Abstract: 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.
Keywords: firm heterogeneity; international trade; offshoring; services; supply chain management
JEL Codes: F12; L23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Greater availability of services (L89) | Higher ratio of imported materials to sales (F10) |
| Higher labor productivity (J24) | Higher ratio of imported materials to sales (F10) |
| More productive manufacturing firms (L23) | Higher ratio of imported materials to sales (F10) |
| Local service availability (R53) | Increased foreign sourcing of materials (F64) |
| Local Irish firms (L66) | Higher impact of local service availability on imports (F69) |