DP13482 International Buyers' Sourcing and Suppliers' Markups in Bangladeshi Garments

Author(s): Julia Cajal-Grossi, Rocco Macchiavello, Guillermo Noguera
Publication Date: January 2019
Keyword(s): Buyer-Driven Value Chains, Global Buyers, Markups, Sourcing Strategies
JEL(s): D23, F63, L11, L14
Programme Areas: Industrial Organization, International Trade and Regional Economics, Development Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13482

Large international buyers play a key role in global value chains. We exploit detailed transaction-level data on the usage of material inputs to study how Bangladeshi garment suppliers' markups vary across international buyers. We find substantial dispersion in markups across export orders of a given seller for the same product. Buyer effects explain a significant share of this variation, while destination effects do not. Buyers adopting relational sourcing strategies pay higher markups than non-relational buyers. This pattern holds within seller-product-year combinations, is robust to controlling for the buyer's size, traded volumes, and quality, and, together with larger volumes, implies higher profits for suppliers dealing with relational buyers.