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Global Sourcing of a Complex Good

Author

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  • Van Biesebroeck, Johannes
  • Zhang, Lijun
Abstract
We analyze a firm that produces a final good from multiple intermediates that can each be sourced domestically or from a low-wage country. The model explicitly incorporates that sourcing decisions of intermediates are interdependent. Equilibrium predictions depend crucially on a key modeling assumption--the nature of the trade friction that foreign production has to overcome. If production abroad involves a fixed cost, offshoring one intermediate unambiguously facilitates offshoring of other intermediates. However, if production abroad involves incomplete contracts, offshoring one intermediate almost always makes it more difficult to offshore others. We illustrate that the pattern in prices at which successive automotive parts are imported into the U.S. accords better with the predictions of the incomplete contracting model, except for a few countries with the best governance indicators.

Suggested Citation

  • Van Biesebroeck, Johannes & Zhang, Lijun, 2011. "Global Sourcing of a Complex Good," CEPR Discussion Papers 8614, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:8614
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Van Biesebroeck, Johannes & Zhang, Lijun, 2014. "Interdependent product cycles for globally sourced intermediates," Journal of International Economics, Elsevier, vol. 94(1), pages 143-156.
    2. Schwarz, Christian & Suedekum, Jens, 2014. "Global sourcing of complex production processes," Journal of International Economics, Elsevier, vol. 93(1), pages 123-139.
    3. Verena Nowak & Christian Schwarz & Jens Suedekum, 2016. "Asymmetric spiders: Supplier heterogeneity and the organization of firms," Canadian Journal of Economics, Canadian Economics Association, vol. 49(2), pages 663-684, May.
    4. Egger, Peter H. & Erhardt, Katharina & Masllorens, Gerard, 2023. "Backward versus forward integration of firms in global value chains," European Economic Review, Elsevier, vol. 153(C).
    5. Pol Antràs, 2014. "Grossman–Hart (1986) Goes Global: Incomplete Contracts, Property Rights, and the International Organization of Production," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 30(suppl_1), pages 118-175.
    6. Nowak, Verena, 2014. "Organizational Decisions in Multistage Production Processes," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100613, Verein für Socialpolitik / German Economic Association.
    7. Takeshi Yagihashi & David D. Selover, 2017. "How Do the Trans-Pacific Economies Affect the USA? An Industrial Sector Approach," The World Economy, Wiley Blackwell, vol. 40(10), pages 2097-2124, October.
    8. Yi-Fan Chen & Alireza Naghavi & Shin-Kun Peng, 2021. "Learning by supplying and competition threat," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 157(1), pages 121-148, February.

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    More about this item

    Keywords

    Fdi; Outsourcing; Property rights;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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