Discussion Paper Details

Please find the details for DP10310 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: The Margins of Global Sourcing: Theory and Evidence from U.S. Firms

Author(s): Pol Antrąs, Teresa C Fort and Felix Tintelnot

Publication Date: December 2014

Keyword(s): complementarities, extensive margin, global sourcing, heterogeneous firms, importing and productivity

Programme Area(s): Industrial Organization and International Trade and Regional Economics

Abstract: This paper studies the extensive and intensive margins of firms' global sourcing decisions. We develop a quantifiable multi-country sourcing model in which heterogeneous firms self-select into importing based on their productivity and country-specific variables. The model delivers a simple closed-form solution for firm profits as a function of the countries from which a firm imports, as well as those countries' characteristics. In contrast to canonical models of exporting in which firm profits are additively separable across exporting markets, we show that global sourcing decisions naturally interact through the firm's cost function. In particular, the marginal change in profits from adding a country to the firm's set of potential sourcing locations depends on the number and characteristics of other countries in the set. Still, under plausible parametric restrictions, selection into importing features complementarity across markets and firms' sourcing strategies follow a hierarchical structure analogous to the one predicted by exporting models. Our quantitative analysis exploits these complementarities to distinguish between a country's potential as a marginal cost-reducing source of inputs and the fixed cost associated with sourcing from this country. Counterfactual exercises suggest that a shock to the potential benefits of sourcing from a country leads to significant and heterogeneous changes in sourcing across both countries and firms.

For full details and related downloads, please visit:

Bibliographic Reference

Antrąs, P, Fort, T and Tintelnot, F. 2014. 'The Margins of Global Sourcing: Theory and Evidence from U.S. Firms'. London, Centre for Economic Policy Research.