Global Sourcing

Pol Antras and Elhanan Helpman

No 4170, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 (search for similar items in EconPapers)
JEL-codes: D23 F12 F14 F23 L11 L22 (search for similar items in EconPapers)
Date: 2004-01
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Working Paper: Global Sourcing (2003)
Working Paper: Global Sourcing (2003)
Journal Article: Global Sourcing (2004)
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