Working Paper: CEPR ID: DP8656
Authors: Fabrice Defever; Farid Toubal
Abstract: We investigate the roles of productivity and the specificity of inputs for the international sourcing strategy of firms which are part of a multinational network. We present a framework in which firms decide to import from a foreign independent supplier or from their related party abroad according to these two dimensions. We use a detailed survey that provides a detailed geographical breakdown of French firms' imports at the product level as well as the sourcing mode used for each transaction. The dataset also provides information to estimate the firms' productivity and their intensity in relationship-specific inputs. After controlling for countries of origin, products and sectors specific effects, the empirical results provide evidence that for the most productive multinationals the likelihood of trading through an independent supplier is higher especially if they use relationship-specific inputs intensively.
Keywords: Incomplete Contracts; Intragroup Trade; Outsourcing; Productivity
JEL Codes: F14; F23; L22; L23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| intensity of relationship-specific inputs (RSI) (L15) | likelihood of sourcing from independent suppliers (L14) |
| productivity of MNCs (F23) | likelihood of sourcing from independent suppliers (L14) |
| intensity of relationship-specific inputs (RSI) (L15) | likelihood of outsourcing (L24) |
| productivity of MNCs (F23) | likelihood of outsourcing (L24) |
| intensity of relationship-specific inputs (RSI) (L15) | productivity of MNCs (F23) |