Global Sourcing and Multinational Activity: A Unified Approach
September 2022
Working Paper Number:
CES-22-36
Abstract
Multinational firms (MNEs) accounted for 42 percent of US manufacturing employment, 87 percent of US imports, and 84 of US exports in 2007. Despite their disproportionate share of global trade, MNEs' input sourcing and final-good production decisions are often studied separately. Using newly merged data on firms' trade and FDI activity by country, we show that US MNEs are more likely to import not only from the countries in which they have affiliates, but also from other countries within their affiliates' region. We rationalize these patterns in a unified framework in which firms jointly determine the countries in which to produce final goods, and the countries from which to source inputs. The model generates a new source of scale economies that arises because a firm incurs a country specific fixed cost that allows all its assembly plants to source inputs from that country. This shared fixed cost across plants creates interdependencies between firms' assembly and sourcing locations, and leads to non-monotonic responses in third markets to bilateral trade cost changes.
Document Tags and Keywords
Keywords
Keywords are automatically generated using KeyBERT, a powerful and innovative
keyword extraction tool that utilizes BERT embeddings to ensure high-quality and contextually relevant
keywords.
By analyzing the content of working papers, KeyBERT identifies terms and phrases that capture the essence of the
text, highlighting the most significant topics and trends. This approach not only enhances searchability but
provides connections that go beyond potentially domain-specific author-defined keywords.
:
market,
manufacturing,
import,
export,
international trade,
subsidiary,
monopolistically,
exporter,
multinational,
foreign,
importing,
country,
economically,
spillover,
supplier,
globalization,
imported,
importer,
exporters multinationals,
custom,
sourcing,
firms trade,
multinational firms
Tags
Tags are automatically generated using a pretrained language model from spaCy, which excels at
several tasks, including entity tagging.
The model is able to label words and phrases by part-of-speech,
including "organizations." By filtering for frequent words and phrases labeled as "organizations", papers are
identified to contain references to specific institutions, datasets, and other organizations.
:
Center for Economic Studies,
Cobb-Douglas,
Bureau of Economic Analysis,
Foreign Direct Investment,
Longitudinal Business Database,
Census of Manufacturing Firms,
Employer Identification Numbers,
Economic Census,
Wholesale Trade,
European Union,
Census Bureau Disclosure Review Board,
Longitudinal Firm Trade Transactions Database,
Disclosure Review Board
Similar Working Papers
Similarity between working papers are determined by an unsupervised neural
network model
know as Doc2Vec.
Doc2Vec is a model that represents entire documents as fixed-length vectors, allowing for the
capture of semantic meaning in a way that relates to the context of words within the document. The model learns to
associate a unique vector with each document while simultaneously learning word vectors, enabling tasks such as
document classification, clustering, and similarity detection by preserving the order and structure of words. The
document vectors are compared using cosine similarity/distance to determine the most similar working papers.
Papers identified with 🔥 are in the top 20% of similarity.
The 10 most similar working papers to the working paper 'Global Sourcing and Multinational Activity: A Unified Approach' are listed below in order of similarity.
-
Working PaperHow Wide Is the Firm Border?🔥
January 2017
Working Paper Number:
CES-17-35
We quantify the normally unobservable forces that determine the boundary of the firm; that is, which transactions are mediated by ownership control as opposed to contracts or markets. To do so, we examine the shipment decisions of tens of thousands of establishments that produce and distribute a variety of products throughout the goods-producing sector. We examine how a firm's willingness to ship over distance varies with whether the recipient is owned by the firm. Because shipping costs increase with distance for many reasons, a greater volume of internal transactions at any given distance reveals the size of the firm's perceived net cost advantage of internal transactions. We find that the firm boundary is notably wide. Having one more vertically integrated downstream establishment in a location has the same effect on transaction volumes to that location as does a 40 percent reduction in distance between sender and destination. We further characterize how this 'internal advantage' varies with observable attributes of the transaction or product being shipped. Finally, we conduct a calibration of a multi-sector general equilibrium trade model and find that costs associated with transacting across firm boundaries also have discernible economy-wide implications.View Full Paper PDF
-
Working PaperTHE MARGINS OF GLOBAL SOURCING: THEORY AND EVIDENCE FROM U.S. FIRMS🔥
December 2014
Working Paper Number:
CES-14-47
This paper studies the extensive and intensive margins of firms' global sourcing decisions. We develop a quantifiable multi-country sourcing model in which heterogeneous firms self-select into importing based on their productivity and country-specific variables. The model delivers a simple closed-form solution for firm profits as a function of the countries from which a firm imports, as well as those countries' characteristics. In contrast to canonical models of exporting in which firm profits are additively separable across exporting markets, we show that global sourcing decisions naturally interact through the firm's cost function. In particular, the marginal change in profits from adding a country to the firm's set of potential sourcing locations depends on the number and characteristics of other countries in the set. Still, under plausible parametric restrictions, selection into importing features complementarity across markets and firms' sourcing strategies follow a hierarchical structure analogous to the one predicted by exporting models. Our quantitative analysis exploits these complementarities to distinguish between a country's potential as a marginal cost-reducing source of inputs and the fixed cost associated with sourcing from this country. Counterfactual exercises suggest that a shock to the potential benefits of sourcing from a country leads to significant and heterogeneous changes in sourcing across both countries and firms.View Full Paper PDF
-
Working PaperFirms' Exporting Behavior under Quality Constraints🔥
May 2009
Working Paper Number:
CES-09-13
We develop a model of international trade with export quality requirements and two dimensions of firm heterogeneity. In addition to "productivity", firms are also heterogeneous in their "caliber" {the ability to produce quality using fewer fixed inputs. Compared to singleattribute models of firm heterogeneity emphasizing either productivity or the ability to produce quality, our model provides a more nuanced characterization of firms' exporting behavior. In particular, it explains the empirical fact that firm size is not monotonically related with export status: there are small firms that export and large firms that only operate in the domestic market. The model also delivers novel testable predictions. Conditional on size, exporters are predicted to sell products of higher quality and at higher prices, pay higher wages and use capital more intensively. These predictions, although apparently intuitive, cannot be derived from singleattribute models of firm heterogeneity as they imply no variation in export status after size is controlled for. We find strong support for the predictions of our model in manufacturing establishment datasets for India, the U.S., Chile, and Colombia.View Full Paper PDF
-
Working PaperTransfer Pricing by U.S.-Based Multinational Firms
September 2008
Working Paper Number:
CES-08-29
This paper examines how prices set by multinational firms vary across arm's-length and related party customers. Comparing prices within firms, products, destination countries, modes of transport and month, we find that the prices U.S. exporters set for their arm's-length customers are substantially larger than the prices recorded for related-parties. This price wedge is smaller for commodities than for differentiated goods, is increasing in firm size and firm export share, and is greater for goods sent to countries with lower corporate tax rates and higher tariffs. We also find that changes in exchange rates have differential effects on arm's-length and related-party prices; an appreciation of the dollar reduces the difference between the prices.View Full Paper PDF
-
Working PaperFactoryless Goods Producers in the US
September 2013
Working Paper Number:
CES-13-46
This paper documents the extent and characteristics of plants and firms in the US that are outside the manufacturing sector according to official government statistics but nonetheless are heavily involved in activities related to the production of manufactured goods. Using new data on establishment activities in the Census of Wholesale Trade conducted by the US Bureau of the Census in 2002 and 2007, this paper provides evidence on so-called 'factoryless goods producers' (FGPs) in the US economy. FGPs are formally in the wholesale sector but, unlike traditional wholesale establishments, FGPs design the goods they sell and coordinate the production activities. This paper documents the extent of FGPs in the wholesale sector and how they differ from traditional wholesalers in terms of their employment, wages, productivity and output. Reclassifying FGP establishments to the manufacturing sector using our definition would have shifted at least 595,000 workers to as many as 1,311,000 workers from wholesale to manufacturing sectors in 2002 and at least 431,000 workers to as many as 1,934,000 workers in 2007.View Full Paper PDF
-
Working PaperTHE TRADABILITY OF SERVICES: GEOGRAPHIC CONCENTRATION AND TRADE COSTS
March 2014
Working Paper Number:
CES-14-03
We develop a methodology for estimating the 'tradability' of goods and services using data on U.S. establishments. Our results show that the average service industry is less tradable than the average manufacturing industry. However, there is considerable within-sector variation in estimated tradability and many service industries are as tradable as manufacturing. Tradable service industries account for a significant share of economic activity and workers employed in those industries have relatively high average wages. Counterfactual analysis indicates that the potential welfare gains from policy liberalization in service trade are of the same order of magnitude as liberalization in the manufacturing sector.View Full Paper PDF
-
Working PaperSupply Chain Adjustments to Tariff Shocks: Evidence from Firm Trade Linkages in the 2018-2019 U.S. Trade War
August 2024
Working Paper Number:
CES-24-43
We use the 2018-2019 U.S. trade war to examine how supply chains adjustments to a tariff cost shock affect imports and exports. Using confidential firm-trade linked data, we show that the decline in imports of tariffed goods was driven by discontinuations of U.S. buyer'foreign supplier relationships, reduced formation of new relationships, and exits by U.S. firms from import markets altogether. However, tariffed products where imports were concentrated in fewer suppliers had a smaller decline in import growth. We then construct measures of export exposure to import tariffs by linking tariffs paid by importing firms to their exported products. We find that the most exposed products had lower exports in 2018-2019, with most of the impact occurring in 2019.View Full Paper PDF
-
Working PaperIndustry Linkages from Joint Production
January 2023
Working Paper Number:
CES-23-02
I develop a theory of joint production to quantify aggregate economies of scope. In US manufacturing data, increased export demand in one industry raises a firm's sales in its other industries that share knowledge inputs like R&D and software. I estimate that knowledge inputs contribute to economies of scope through their scalability and partial non-rivalry within the firm. On average a 10 percent increase in output in one industry lowers prices in other industries by 0.4 percent. Such economies of scope manifest disproportionately among knowledge proximate industries and imply large spillover impacts of recent US-China trade policy on producer prices.View Full Paper PDF
-
Working PaperAggregating From Micro to Macro Patterns of Trade
February 2018
Working Paper Number:
CES-18-10
We develop a new framework for aggregating from micro to macro patterns of trade. We derive price indexes that determine comparative advantage across countries and sectors and the aggregate cost of living. If firms and products are imperfect substitutes, we show that these price indexes depend on variety, average demand/quality and the dispersion of demand/quality-adjusted prices, and are only weakly related to standard empirical measures of average prices, thereby providing insight for elasticity puzzles. Of the cross-section (time-series) variation in comparative advantage, 50 (90) percent is accounted for by variety and average demand/quality, with average prices contributing less than 10 percent.View Full Paper PDF
-
Working PaperFirm Structure, Multinationals, and Manufacturing Plant Deaths
October 2005
Working Paper Number:
CES-05-18
Plant shutdowns shape industry and aggregate productivity paths and play a major role in the dynamics of employment and industrial restructuring. Plant closures in the U.S. manufacturing sector account for more than half of gross job destruction. While multi-plant firms and multinationals dominate U.S. manufacturing, theoretical and empirical work has largely ignored the role of firms in the plant shutdown decision. This paper examines the effects of firm structure on manufacturing plant closures. Using U.S. data, we find that plants belonging to multi-plant firms are less likely to exit. Similarly, plants owned by U.S. multinationals are less likely to close. However, the superior survival chances are due to the characteristics of the plants themselves rather than the nature of the firms. Controlling for plant and industry attributes that reduce the probability of death, we find that plants owned by multi-unit firms and U.S. multinationals are much more likely to close. A recent change in ownership also increases the chances that a plant will be closed.View Full Paper PDF
