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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.

Authors: 
Pol Antràs, Harvard University
Teresa Fort, Dartmouth College
Felix Tintelnot, University of Chicago
Publication Date: 
July, 2016
Publication Type: 
Institution: 
Becker Friedman Institute
Series: 
Working Paper Series
Document Number: 
No. 2016-18