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

NBER Working Paper No. 20772

Issued in December 2014, Revised in July 2016

NBER Program(s):Industrial Organization, International Trade and Investment



We 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.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w20772

Published: Pol Antràs & Teresa C. Fort & Felix Tintelnot, 2017. "The Margins of Global Sourcing: Theory and Evidence from US Firms," American Economic Review, vol 107(9), pages 2514-2564. citation courtesy of

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