Working Paper: NBER ID: w10082
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: Global Sourcing; International Trade; Productivity; Outsourcing; Integration
JEL Codes: D23; F12; F14; F23; L11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher productivity (O49) | engage in foreign direct investment (FDI) (F23) |
| higher productivity (O49) | insourcing of intermediate goods (L60) |
| lower productivity (O49) | outsourcing (L24) |
| greater productivity dispersion (D29) | higher prevalence of imported inputs (F14) |
| greater productivity dispersion (D29) | preference for integration among high-productivity firms (L15) |
| low headquarter intensity + low productivity (J24) | outsourcing domestically (L24) |
| high productivity + low headquarter intensity (R32) | outsourcing abroad (L24) |
| fixed and variable costs (G31) | choice between integration and outsourcing (L24) |
| integration being more prevalent in headquarter-intensive sectors (L89) | choice between integration and outsourcing (L24) |