Input Sourcing and Multinational Production | Zendy

Stefania Garetto | Zendy

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Input Sourcing and Multinational Production

Author(s) -

Stefania Garetto

Publication year - 2013

Publication title -

american economic journal macroeconomics

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 10.443

H-Index - 61

eISSN - 1945-7707

pISSN - 1945-7715

DOI - 10.1257/mac.5.2.118

Subject(s) - outsourcing , multinational corporation , productivity , production (economics) , business , industrial organization , consumption (sociology) , welfare , per capita , variance (accounting) , distribution (mathematics) , general equilibrium theory , economics , international trade , microeconomics , marketing , market economy , finance , macroeconomics , mathematical analysis , social science , population , demography , mathematics , accounting , sociology

I propose a general equilibrium framework where firms decide whether to outsource or integrate input manufacturing, domestically or abroad. By outsourcing, firms may benefit from suppliers' technologies, but pay mark-up prices. By sourcing intrafirm, they save on mark-ups and pay possibly lower foreign wages. Multinational corporations arise when firms integrate production abroad. The model predicts that intrafirm imports are positively correlated with the mean and variance of the firms' productivity distribution and with the degree of input differentiation. I use the model to quantify the US welfare gains from intrafirm trade, which amount to about 0.23 percent of consumption per-capita. (JEL D21, F12, F23, F41, L11, L24)

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