Productivity and Firm Boundaries

51 Pages Posted: 31 Oct 2018

See all articles by Wilhelm Kohler

Wilhelm Kohler

University of Tuebingen - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Marcel Smolka

University of Flensburg

Date Written: 2018

Abstract

This paper develops and applies a test of the property rights theory of the firm in the context of global input sourcing. We use the model by Pol Antràs and Elhanan Helpman, “Global Sourcing,” Journal of Political Economy, 112:3 (2004), 552-80, to derive a new prediction regarding how the productivity of a firm affects its choice between vertical integration and outsourcing and how this effect depends on the relative input intensity of the production process. The prediction we derive hinges on less restrictive assumptions than industry-level predictions available in existing literature and survives in more realistic versions of the model featuring multiple suppliers and partial vertical integration. We present robust firm-level evidence from Spain showing that, in line with our prediction, the effect of productivity works more strongly in favor of vertical integration, and against outsourcing, in more headquarter-intensive industries.

Keywords: global sourcing, incomplete contracts, property rights theory, firm productivity

JEL Classification: F120, F190, F230, L220, L230

Suggested Citation

Kohler, Wilhelm K. and Smolka, Marcel, Productivity and Firm Boundaries (2018). CESifo Working Paper No. 7214, Available at SSRN: https://ssrn.com/abstract=3275387 or http://dx.doi.org/10.2139/ssrn.3275387

Wilhelm K. Kohler (Contact Author)

University of Tuebingen - Department of Economics ( email )

Mohlstrasse 36
D-72074 Tuebingen, 72074
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Marcel Smolka

University of Flensburg ( email )

Auf dem Campus 1
Flensburg, 24943
Germany

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