American Economic Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
Input Sourcing and Multinational Production
American Economic Journal: Macroeconomics
vol. 5,
no. 2, April 2013
(pp. 118–51)
Abstract
I propose a general equilibrium framework where firms decide whether to outsource or integrate input manufacturing, domestically or abroad. By outsourcing, firms may benefit from suppliers' technologies, but pay mark-up prices. By sourcing intrafirm, they save on mark-ups and pay possibly lower foreign wages. Multinational corporations arise when firms integrate production abroad. The model predicts that intrafirm imports are positively correlated with the mean and variance of the firms' productivity distribution and with the degree of input differentiation. I use the model to quantify the US welfare gains from intrafirm trade, which amount to about 0.23 percent of consumption per-capita. (JEL D21, F12, F23, F41, L11, L24)Citation
Garetto, Stefania. 2013. "Input Sourcing and Multinational Production." American Economic Journal: Macroeconomics 5 (2): 118–51. DOI: 10.1257/mac.5.2.118Additional Materials
JEL Classification
- D21 Firm Behavior: Theory
- F12 Models of Trade with Imperfect Competition and Scale Economies
- F23 Multinational Firms; International Business
- F41 Open Economy Macroeconomics
- L11 Production, Pricing, and Market Structure; Size Distribution of Firms
- L24 Contracting Out; Joint Ventures; Technology Licensing