The Margins of Global Sourcing: Theory and Evidence from US Firms†

The Margins of Global Sourcing: Theory and Evidence from US Firms† AbstractWe develop a quantifiable multi-country sourcing model in which firms self-select into importing based on their productivity and country-specific variables. In contrast to canonical export models where firm profits are additively separable across destination markets, global sourcing decisions naturally interact through the firm's cost function. We show that, under an empirically relevant condition, selection into importing exhibits complementarities across source markets. We exploit these complementarities to solve the firm's problem and estimate the model. Comparing counterfactual predictions to reduced-form evidence highlights the importance of interdependencies in firms' sourcing decisions across markets, which generate heterogeneous domestic sourcing responses to trade shocks. (JEL D24, F14, F23, L14, L21) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Review American Economic Association

The Margins of Global Sourcing: Theory and Evidence from US Firms†

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Publisher
American Economic Association
Copyright
Copyright © 2017 © American Economic Association
ISSN
0002-8282
D.O.I.
10.1257/aer.20141685
Publisher site
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Abstract

AbstractWe develop a quantifiable multi-country sourcing model in which firms self-select into importing based on their productivity and country-specific variables. In contrast to canonical export models where firm profits are additively separable across destination markets, global sourcing decisions naturally interact through the firm's cost function. We show that, under an empirically relevant condition, selection into importing exhibits complementarities across source markets. We exploit these complementarities to solve the firm's problem and estimate the model. Comparing counterfactual predictions to reduced-form evidence highlights the importance of interdependencies in firms' sourcing decisions across markets, which generate heterogeneous domestic sourcing responses to trade shocks. (JEL D24, F14, F23, L14, L21)

Journal

American Economic ReviewAmerican Economic Association

Published: Sep 1, 2017

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