Global sourcing and credit constraints

This paper incorporates credit constraints into a model of global sourcing and heterogeneous firms. Following Antràs and Helpman ( 2004 ), heterogeneous firms decide whether to outsource or integrate input suppliers. Financing of fixed organizational costs requires borrowing with credit constraints and collateral based on tangible assets. The party that controls intermediate inputs is responsible for these financing costs. Sectors differ in their reliance on external finance and countries vary in their financial development. The model predicts that increased financial development decreases the share of integration relative to outsourcing in a country. The effect is more pronounced in sectors with a high reliance on external finance. However, this effect is mitigated by higher productivity (TFP) and headquarter intensity. Empirical examination confirms the predictions of the model. An improvement in financial development from the 25th to the 75th percentile in industries at the 75th percentile in finance dependence relative to those at the 25th percentile is associated with a 16.8% decrease in the median share of US intra‐firm imports. An increase in TFP from the 25th to the 75th percentile in the TFP triple interactions increase the share of US intra‐firm imports at the median by 3.2%. An increase in headquarter intensity from the 25th to the 75th percentile in the headquarter intensity triple interactions increase the share of US intra‐firm imports at the median by 21%.     

Intermediate good sourcing,wages and inequality: From theory to evidence

This paper examines the consequences of offshoring and outsourcing on domestic wages and wage inequality. I highlight the role of labor market frictions in impacting firms’ outsourcing and offshoring decisions; specifically, how differential costs of matching with workers affect the location of production (onshore or offshore) and how differential costs of assessing worker quality affect the ownership of intermediate production (intra‐firm or inter‐firm). I demonstrate how firm sourcing decisions can depend crucially on the industry skill intensity, which reflects the importance of worker–firm match quality, and as a result, the effect of offshoring on domestic labor depends on occupation and industry characteristics, as well as the ownership regime of trade. Bringing the theory to the data I rely on plausibly exogenous variation in the cost of inter‐ and intra‐firm offshoring to identify the effects of a change in each type of offshoring on domestic wages. I find strong evidence that the effect of offshoring on domestic wages—both on the average and on the wage distribution—is governed by the type of offshoring (inter‐ vs. intra‐firm), the skill intensity of the industry, and the offshorability of the occupation.     

DOES WAGE DISPERSION MAKE ALL FIRMS PRODUCTIVE?

This article puts the relationship between wage dispersion and firm productivity to an updated test, taking advantage of access to detailed Belgian linked employer–employee panel data. Controlling for simultaneity issues, time‐invariant workplace characteristics and dynamics in the adjustment process of productivity, empirical results reveal the existence of a positive impact from conditional intra‐firm wage dispersion to firm productivity (measured by the average value added per hour worked), which however decreases for higher dispersion levels. Findings thus suggest that the incentive effect of wage dispersion, predicted for instance by the ‘tournament’ model, dominates ‘fairness’ and/or ‘sabotage’ considerations. Further results reveal that the influence of wage dispersion on firm productivity is stronger among firms with a larger proportion of highly skilled workers but does not depend on whether wages are collectively renegotiated at the firm level.     

How and where to offshore: a productivity comparison at the firm level

Using recent survey data on South Korean firms’ strategies for sourcing intermediate goods from abroad, we investigate whether there exists a productivity premium of offshoring by considering organizational forms (insourcing versus outsourcing) and the income level of offshored countries (North versus South) altogether. Thus, we consider the following four offshoring types: outsourcing from South, insourcing from South, outsourcing from North and insourcing from North. Unlike previous studies, we give particular attention to the comparison between outsourcing from North and insourcing from South and find that firms outsourcing from North are more productive than firms sourcing from their own affiliates in South. We offer three critical conditions to incorporate our empirical findings into the standard firm heterogeneity model: the fixed cost is higher for insourcing than for outsourcing and is higher in North than in South, the headquarters receive a larger share of the final revenue through insourcing than through outsourcing, and sourcing from North guarantees better profitability (or a bigger share) in the market for the headquarters than sourcing from South. Thus, this article contributes to the literature by identifying a new productivity order.     

Outsourcing, Foreign Ownership, and Productivity: Evidence from UK Establishment-level Data

The paper presents an empirical analysis of “outsourcing” using establishment‐level data for UK manufacturing industries. The authors analyze an establishment's decision to outsource and the subsequent effects of outsourcing on the establishment's productivity. Outsourcing is compared in domestic with foreign‐owned establishments. The empirical results suggest that high wages are positively related to outsourcing, suggesting that the cost‐saving motive is important. Foreign‐owned firms have higher levels of outsourcing than domestic establishments. In the productivity analysis, an establishment's outsourcing intensity is positively related to its labor productivity and total factor productivity growth, and this effect is more pronounced for foreign establishments.     

Outsourcing and firm productivity: a production function approach

This paper is aimed at analyzing the relationship between outsourcing and productivity. Specifically, this paper deals with outsourcing at the firm level and focuses on the role of contracting out of manufacturing activities. I obtain new insights on this topic, mainly using a precise measure for outsourcing and analyzing differences across industries. Using an unbalanced panel of Spanish manufacturing firms, I estimate a production function depending on traditional inputs (labor, capital, and materials) and an index of production subcontracting. I find that for manufacturing as a whole, outsourcing intensity has a positive effect on productivity, showing an elasticity of output with respect to outsourcing around 0.15. When analyzing industry level results, I find that outsourcing intensity has a positive effect on productivity, mainly for firms belonging to light industries.     

Intra‐firm trade,exporting, importing,and firm performance

Abstract This paper examines firm heterogeneity in terms of size, wages, capital intensity, and productivity between domestic and foreign‐owned firms that engage in intra‐firm trade, firms that export and import, firms that import only, and firms that export only. As previously documented, heterogeneity between different groups of trading firms is substantial. Taking into account intra‐firm trade in addition to exporting and importing yields new insights into the productivity advantage previously established for exporting firms. The results presented here show that this premium accrues only to exporters that also import and to exporters that also engage in intra‐firm trade, but not to firms that export only. Using simultaneous quantile regressions, the paper illustrates that heterogeneity within different groups of trading firm is equally large. Some of this within‐group heterogeneity can be attributed to differences in trading partners.     

The Role of Trade in Intra‐Industry Productivity Growth—the Case of Old and New European Union Countries

The purpose of this paper is to evaluate the role of trade in productivity growth in a sample of 30 sectors in 25 EU countries in the period of rapid East–West integration (1995–2007). Shift‐share analysis is used to show that changes in value added per hour worked in these countries appear to be mainly due to positive developments (rising productivity) within single industries and only to a lower extent result from a shift towards higher productivity activities. Trade is found to be an important positive determinant of intra‐industry productivity growth in European countries. Exports and imports alike can be associated with efficiency gains, but intermediate good exchange and trade with New Member States exert a particularly strong influence on intra‐industry productivity growth in the EU.     

Intellectual property rights,product complexity and the organization of multinational firms

This paper studies how the intellectual property right (IPR) regime in destination countries influences the decision of firms between procurement from related parties and from independent suppliers while the latter may involve technology sharing or not. Using firm‐level data on the mode choice for each transaction and a new product complexity measure, results confirm that firms are generally reluctant to source complex goods from outside firm boundaries. However, when technology is shared, IPRs promote outsourcing of more complex goods whereas without technology sharing, IPRs promote outsourcing of less complex products that are prone to reverse engineering and simpler to imitate.     

North–South Outsourcing,Immigration, and Skilled Wages: Through the Lens of Incomplete Contracts

The forces of immigration and offshore outsourcing are subject to factors that leave sufficient room for incompleteness in a contract. The authors present a model that allows one to compare the effects of immigration and offshore outsourcing, on skilled wage, when both are subject to contractual incompleteness. They capture the sensitivity of the effect on the skilled wage, of immigration and offshore outsourcing to complementarities between firm‐specific human capital and human capital that is transferable across firms manufacturing intermediate goods. In particular, the authors show that the North–South gap in skilled wages is likely to (i) increase through the forces of immigration when the intermediate goods' technology is super‐modular in the North but sub‐modular in the South and (ii) decrease through the forces of outsourcing when the intermediate goods' technology is sub‐modular in the North but super‐modular in the South.     

Structural change and misallocation: Firm‐level evidence from Poland*

Early transition literature linked a large number of firm failures with the inability to overcome the pre‐transition misallocation of resources, that is, the inadequate capital–labour ratio. We look at the link between misallocation and firm survival using a rich firm‐level dataset of over 1,600 manufacturing plants established in a centrally planned economy after 1945. Our duration models include the standard Olley–Pakes misallocation measures as well as a firm‐level measure of the counterfactual level of capital that takes into account the present‐day market allocation and productivity. We show that while privatization is positively related to firm survival, misallocation (a) was more of a firm‐level than sector‐level phenomenon and, more importantly, (b) it, in general, did not have a sizeable effect on the actual firm survival nor it had an impact on the outcome of privatization.     

Firm productivity and importing: Evidence from Chinese manufacturing firms

This paper investigates various aspects of the relationship between firm productivity and importing for a large sample of Chinese firms between 2002 and 2006 making a distinction between the origin, variety, skill and technology content of imports. Employing a random effects probit model and a propensity score matching with difference‐in‐differences (PSM–DID) approach and treating imports as endogenous in our measure of total factor productivity (TFP) (De Loecker 2007), we test the self‐selection and learning‐by‐doing hypotheses. Our results show evidence of a bi‐directional causal relationship between importing and productivity. Although importing firms tend to be more productive before entering the import market, once they start importing firms experience significant productivity gains for up to two years following entry. We also find evidence of learning effects following the decision to import, which is stronger when import starters source their products from high‐income economies, import a wider variety of products and import products with a higher skill and technology content. A number of robustness checks confirm the learning effects of importing on TFP growth.     

Outsourcing versus integration at home or abroad and firm heterogeneity

This paper analyzes the location (at home or abroad) and the mode of organization (outsourcing versus integration) of intermediate inputs production, using data on a sample of Italian manufacturing companies and focusing on the role of firm heterogeneity. We find evidence of a productivity ordering where foreign integration is chosen by the most productive firms and domestic outsourcing is chosen by the least productive firms; firms with medium-high productivity choose domestic integration, firms with medium-low productivity choose foreign outsourcing.     

North–South Trade Liberalization and Economic Welfare

We consider a general equilibrium model of a developing economy (the South) that opens to trade with a developed economy (the North). The southern economy is characterized by open urban unemployment and rural–urban migration, a competitive agricultural sector and a monopolistically competitive manufacturing sector. Hence, there is potential for both inter‐ and intra‐industry trade to arise on liberalization, in addition to distortionary effects of duality. Southern comparative advantage in agriculture may arise from the labor market distortion and the basis for intra‐industry trade is love for variety. We characterize various configurations of the trade pattern, and the resulting welfare consequences of opening to trade in this context. We illustrate a new mechanism under which in some circumstances it may be possible for trade liberalization to lower economic welfare in the South.     

The Energy-Bias of North–South Technology Spillovers: A Global,Bilateral, Bisectoral Trade Analysis

We examine variations in the South–North ratios (emerging vs. industrialized countries) of energy and labor intensities driven by imports. We use the novel World input-output database that provides bilateral and bisectoral data for 40 countries and 35 sectors for 1995–2009. We find South–North convergence of energy and labor intensities, an energy bias of import-driven convergence and no robust difference between imports of intermediate and investment goods. Accordingly, trade helps emerging economies follow a ‘green growth’ path, and trade-related policies can enhance this path. However, the effects are economically small and require a long time horizon to become effective. Trade-related policies can become much more effective in selected countries and sectors: China attenuates labor intensity via imports of intermediate goods above average. Brazil reduces energy intensity via imports of intermediate and investment goods above average. Production of machinery as an importing sector in emerging countries can immoderately benefit from trade-related reductions in factor intensities. Electrical equipment as a traded good particularly decreases energy intensity. Machinery particularly dilutes labor intensity. Our main results are statistically highly significant and robust across specifications.     

Rethinking the import-productivity nexus for Italian manufacturing

We provide evidence on the firm level productivity effects of imports of intermediates. By exploiting a large panel of Italian manufacturing firms, we are able to separately explore the role of importing from high and low income countries. Importing does not permanently affect the firm productivity growth. This finding holds both when we test for the import entry by means of Propensity Score Matching techniques and when we analyse the import intensity within a dynamic panel data model framework. On the contrary, we confirm the existence of self-selection into importing. Also, our evidence supports the learning-by-exporting effects in Italian manufacturing and we prove that this result is robust to the control of firm import activity.     

Determinants of vertical integration in export processing: Theory and evidence from China

This paper examines the determinants of vertical integration versus outsourcing in export processing, by exploiting the coexistence of two export processing regimes in China, which designate by law who owns and controls the imported components. Based on a variant of the Antràs-Helpman (2004) model, we show theoretically that control over imported components for assembly can affect firm integration decisions. Our empirical results show that when Chinese plants control the use of components, the export share of foreign-owned plants is positively correlated with the intensity of inputs provided by the headquarter (capital, skill, and R&D). These results are consistent with the property-rights theory of intra-firm trade. However, when foreign firms own and control the components, there is no evidence of a positive relationship between the intensity of headquarters' inputs and the prevalence of vertical integration. The results are consistent with our model that considers control over imported components as an alternative to asset ownership to alleviate hold-up by export-processing plants.     

Intra‐industry Trade Liberalization: Why Skilled Workers are More Likely to Support Free Trade

This paper presents a theoretical model and empirical analysis that connects the prevalence of intra‐industry trade with increased wage inequality from trade liberalization in both skilled and unskilled labor abundant countries. The Stolper–Samuelson effect is incorporated into an intra‐industry trade liberalization (intra‐ITL) hypothesis where skilled labor opposes protectionism in all countries engaged in intra‐industry trade because skilled workers gain at the expense of unskilled workers from multilateral trade liberalization within the skill‐intensive sector. We examine empirical evidence on whether skilled individuals are more supportive of trade liberalization than unskilled individuals across 31 countries with different levels of intra‐industry trade and skill endowments. We find that the extent to which countries engage in intra‐industry trade in high‐tech commodities is strongly linked with the intensity of opposition to protection by skilled labor. Regression results strongly support our hypothesis that skilled workers, almost everywhere, are more likely to support free trade.     

The Effect of Foreign Entry Regulation on Downstream Productivity: Microeconomic Evidence from China*

We examine the cross‐industry influence of foreign entry regulation (based on a novel measure) on the productivity outcomes of downstream firms through input–output linkages in China. In contrast to the significant liberalization of the manufacturing sector, restrictions on the service sector remained stringent over the period 1997–2007. We find a powerful depressant effect of foreign entry barriers imposed on the upstream manufacturing and service industries on the productivity of downstream manufacturers, and this effect depends on a number of industry‐ and firm‐specific features. Our research calls for further investment liberalization (particularly in the service sector) in China.     

Monopolistic Competition and North–South Trade

This paper examines the consequences of opening to international trade for a developing economy with open urban unemployment and rural–urban migration, where the urban sector is monopolistically competitive. It is shown that there exists a threshold level of urbanization prior to which increases in product variety will be reflected in increased urban unemployment, that opening to intra‐industry trade with a high‐wage economy (i.e. North–South trade) will reduce the rate of urban unemployment by a greater amount than intra‐industry trade with a similar economy, and that trade intervention in the South may lower welfare by reducing varieties produced in the North.