Dynamics in Input Sourcing

59 Pages Posted: 28 Apr 2017

See all articles by Elaine Chung

Elaine Chung

Harvard University, Department of Economics, Students

Date Written: April 25, 2017


This explores the dynamics of intermediate input sourcing using the confidential U.S. customs trade data from the U.S. Census. I document three key empirical facts on sourcing dynamics, and explain them using a model on supplier uncertainty and learning. I find first that new suppliers have high entry and exit rates, and second, they are given lower shares on average than incumbent suppliers. Third, over time, suppliers' shares tend to converge to an equal level. To explain these facts, I test the two key empirical implications from the Rauch and Watson model. First, supplier uncertainty leads to small orders to new suppliers, and second higher search cost leads to longer relationships. I find evidence consistent with the model and hypothesis of learning.

Keywords: Dynamics, Sourcing, Learning, Uncertainty

JEL Classification: F10, F18, F61

Suggested Citation

Chung, Elaine, Dynamics in Input Sourcing (April 25, 2017). Available at SSRN: https://ssrn.com/abstract=2958504 or http://dx.doi.org/10.2139/ssrn.2958504

Elaine Chung (Contact Author)

Harvard University, Department of Economics, Students ( email )

Cambridge, MA
United States

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