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

52 Pages Posted: 5 Mar 2015  

Pol Antras

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

Teresa Fort

Tuck School of Business at Dartmouth

Felix Tintlenot

University of Chicago

Multiple version iconThere are 4 versions of this paper

Date Written: December 1, 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.

Suggested Citation

Antras, Pol and Fort, Teresa and Tintlenot, Felix, The Margins of Global Sourcing: Theory and Evidence from U.S. Firms (December 1, 2014). US Census Bureau Center for Economic Studies Paper No. CES-WP-14-47; Tuck School of Business Working Paper No. 2573140. Available at SSRN: https://ssrn.com/abstract=2573140 or http://dx.doi.org/10.2139/ssrn.2573140

Pol Antras (Contact Author)

Harvard University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Teresa C. Fort

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States

Felix Tintlenot

University of Chicago

1101 East 58th Street
Chicago, IL 60637
United States

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