The Margins of Global Sourcing: Theory and Evidence from U.S. Firms
We develop a quantifiable multi-country sourcing model in which firms self-select into importing based on their productivity and country-specific variables. In contrast to canonical export models where firm profits are additively separable across destination markets, global sourcing decisions naturally interact through the firm's cost function. We show that, under an empirically relevant condition, selection into importing exhibits complementarities across source markets. We exploit these complementarities to solve the firm's problem and estimate the model. Comparing counterfactual predictions to reduced-form evidence highlights the importance of interdependencies in firms' sourcing decisions across markets, which generate heterogeneous domestic sourcing responses to trade shocks.
You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.
This paper was revised on July 17, 2016
Document Object Identifier (DOI): 10.3386/w20772
Users who downloaded this paper also downloaded* these: