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Firm outsourcing decisions: evidence from U.S. foreign trade zones
Author(s) -
Swenson DL
Publication year - 2000
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.2000.tb00012.x
Subject(s) - depreciation (economics) , outsourcing , liberian dollar , economics , exchange rate , us dollar , business , monetary economics , international economics , microeconomics , finance , profit (economics) , marketing , capital formation , financial capital
This article examines the operations of firms located in U.S. foreign trade subzones to study the responsiveness of outsourcing to international cost changes. I find that firms reduce their reliance on foreign inputs when dollar depreciation increases the relative price of imported inputs. The effect is pervasive across industries and is economically significant. In addition, firms that rely more heavily on imported intermediate inputs reduce their overall shipments when dollar depreciation elevates their imported, input costs. However, the magnitude of the shipments effect is economically small, suggesting that firms respond to exchange rate movements by adjusting their operations on other dimensions.