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

53 Pages Posted: 23 Jan 2015

See all articles by Pol Antras

Pol Antras

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Teresa Fort

Dartmouth College - Tuck School of Business

Felix Tintelnot

University of Chicago Department of Economics

Multiple version iconThere are 4 versions of this paper

Date Written: December 2014

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.

Keywords: complementarities, extensive margin, global sourcing, heterogeneous firms, importing, productivity

JEL Classification: C63, D21, D22, F12, F23, F61, L11, L16, L23

Suggested Citation

Antras, Pol and Fort, Teresa C. and Tintelnot, Felix, The Margins of Global Sourcing: Theory and Evidence from U.S. Firms (December 2014). CEPR Discussion Paper No. DP10310. Available at SSRN: https://ssrn.com/abstract=2554385

Pol Antras (Contact Author)

Harvard University - Department of Economics ( email )

Littauer Center
Room 230
Cambridge, MA 02138
United States
617-495-1236 (Phone)
617-495-8570 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Teresa C. Fort

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

Felix Tintelnot

University of Chicago Department of Economics ( email )

1101 East 58th Street
Chicago, IL 60637
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
0
Abstract Views
912
PlumX Metrics