DP8656 Productivity, Relationship-Specific Inputs and the Sourcing Modes of Multinationals

Author(s): Fabrice Defever, Farid Toubal
Publication Date: November 2011
Keyword(s): incomplete contracts, intra-group trade, outsourcing, productivity
JEL(s): F14, F23, L22, L23
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=8656

We investigate the roles of productivity and the specificity of inputs for the international sourcing strategy of firms which are part of a multinational network. We present a framework in which firms decide to import from a foreign independent supplier or from their related party abroad according to these two dimensions. We use a detailed survey that provides a detailed geographical breakdown of French firms' imports at the product level as well as the sourcing mode used for each transaction. The dataset also provides information to estimate the firms' productivity and their intensity in relationship-specific inputs. After controlling for countries of origin, products and sectors specific effects, the empirical results provide evidence that for the most productive multinationals the likelihood of trading through an independent supplier is higher especially if they use relationship-specific inputs intensively.