Incomplete contracts and the boundaries of the multinational firm

Nathan Nunn and Daniel Trefler

Journal of Economic Behavior & Organization, 2013, vol. 94, issue C, 330-344

Abstract: Using data on U.S. intra-firm and arm's-length imports for 5705 products imported from 220 countries, we examine the determinants of the share of U.S. imports that are intra-firm. We examine two predictions that arise from Antràs (2003), Antràs and Helpman (2008) and Antràs and Helpman (2004). First, we find that, consistent with the implicit logic of Antràs (2003) and the explicit predictions of Antràs and Helpman (2008), vertical integration is increasing in the importance of non-contractible headquarter inputs relative to non-contractible supplier inputs. In other words, we show that only non-contractible headquarter inputs affect the firm's make-or-buy decision. Second, we also provide empirical support for the Antràs and Helpman (2004) prediction that intra-firm trade is largest where non-contractible headquarter inputs are important and productivity is high.

Keywords: Intra-firm trade; Incomplete contracts; Vertical integration; Outsourcing; Fixed-costs (search for similar items in EconPapers)
JEL-codes: F14 F23 L14 L33 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (104)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:94:y:2013:i:c:p:330-344

DOI: 10.1016/j.jebo.2012.10.004

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