Productivity Relationship Specific Inputs and the Sourcing Modes of Multinational Firms

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Niveau: Supérieur, Doctorat, Bac+8
Productivity, Relationship-Specific Inputs and the Sourcing Modes of Multinational Firms ! Fabrice Defever a and Farid Toubal b March 2010 Abstract This paper investigates the roles of productivity and the specificity of inputs for the international sourcing strategy of multinational firms. We modify the Antras and Helpman (2004) model to allow both the productivity and the intensity of specific inputs provided by suppliers to vary across firms. We describe an equilibrium in which firms decide on their type of ownership ac- cording to these dimensions. The model is estimated using detailed firm-level data on French multinationals' imports. The dataset has information on multi- nationals' productivity, their intensity in relationship-specific inputs and their mode of sourcing. The empirical results support the prediction of the model and suggest that multinational firms' productivity and intensity of specific inputs alter the structure of international trade. Keywords : Productivity, Incomplete Contracts, Intra-firm Trade, Outsour- cing. JEL classification : F23, F14, L22, L23 !We are really grateful to Pol Antras, Andrew Bernard, Elhanan Helpman, Beata Javorcik, Philippe Martin, Thierry Mayer, Gianmarco Ottaviano, Peter Neary, Ste- ven Redding, Frederic Robert-Nicoud and Jean-Marc Siroen for helpful comments. Thanks to seminar participants at the universities of Aix-Marseille, ESSEC Busi- ness School, Strathclyde-Glasgow, London School of Economics, UCL-Louvain la Neuve, Oxford, the annual meeting of the Royal Economic Society 2008 (Warwick), ESEM 2008 (Milan), ETSG 2008 (Warsaw) and Econometric

  • productive than

  • french multinational

  • firms

  • hold true using

  • using aggregate

  • vertical integration

  • specific inputs

  • organization choice


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Productivity,Relationship-SpecificInputsandtheSourcingModesofMultinationalFirms!FabriceDefeveraandFaridToubalbMarch2010AbstractThispaperinvestigatestherolesofproductivityandthespecificityofinputsfortheinternationalsourcingstrategyofmultinationalfirms.WemodifytheAntra`sandHelpman(2004)modeltoallowboththeproductivityandtheintensityofspecificinputsprovidedbysupplierstovaryacrossfirms.Wedescribeanequilibriuminwhichfirmsdecideontheirtypeofownershipac-cordingtothesedimensions.Themodelisestimatedusingdetailedfirm-leveldataonFrenchmultinationals’imports.Thedatasethasinformationonmulti-nationals’productivity,theirintensityinrelationship-specificinputsandtheirmodeofsourcing.Theempiricalresultssupportthepredictionofthemodelandsuggestthatmultinationalfirms’productivityandintensityofspecificinputsalterthestructureofinternationaltrade.Keywords:Productivity,IncompleteContracts,Intra-firmTrade,Outsour-.gnicJELclassification:F23,F14,L22,L23!WearereallygratefultoPolAntra`s,AndrewBernard,ElhananHelpman,BeataJavorcik,PhilippeMartin,ThierryMayer,GianmarcoOttaviano,PeterNeary,Ste-venRedding,Fre´de´ricRobert-NicoudandJean-MarcSiroenforhelpfulcomments.ThankstoseminarparticipantsattheuniversitiesofAix-Marseille,ESSECBusi-nessSchool,Strathclyde-Glasgow,LondonSchoolofEconomics,UCL-LouvainlaNeuve,Oxford,theannualmeetingoftheRoyalEconomicSociety2008(Warwick),ESEM2008(Milan),ETSG2008(Warsaw)andEconometricSociety2009(SanFrancisco).aUniversityofNottingham,SchoolofEconomicsandCentreforEconomicPerfor-manceattheLondonSchoolofEconomics,HoughtonStreet,LondonWC2A2AEUnitedKingdom.Email:f.defever@lse.ac.uk.bUniversityofAngers,ParisSchoolofEconomicsandCEPII.CentredE´conomiedelaSorbonne,106-112Boulevarddel’Hoˆpital,75647Paris.E-mail:toubal@univ-paris1.fr.
1IntroductionGlobalizationofthelastdecadesischaracterizedbytheincreasingimpor-tanceofmultinationalfirms(MNEs)ininvestment,employmentandforeigntrade.One-thirdofworldtradeisintra-firm,andanotherthirdinvolvestheparticipationofmultinationalfirmsinoneofthetwosidesoftheexchange(WTO,1996).MNEsorganizetheirproductiononaglobalscale,importingin-putsfromtheira!liates(intra-firmtrade)and/orfromindependentsuppliers(outsourcing).Thesourcingstrategiesofmultinationalfirmshavetriggeredconsiderableresearche"ortsamongtradetheorists.Inanewbodyofwork,moderntheoriesofthefirmhavebeenbroughtintomodelsofinternationaltrade.1Inthispaper,wefollowAntra`sandHelpman(2004,2008)andweinvestigatetheorganizationchoiceofmultinationalfirmsthatimportinputsfromabroad.First,weshowthattheimplicationofthemodelisbornebythedata:namely,theintensityofnon-contractiblerelationshipspecificinputshasapositivee"ectontheoutsourcingdecision.Second,weshowthatthesortingpredictionsofthemodelsofAntra`sandHelpman(2004,2008)arealsobornebythedata.Astheauthorsstress,thesepredictionsaresensitivetotherankingoffixedcosts.Interestingly,thedatashowsthesamesensitivity.Whereaspreviousempiricalworkshaveusedindustry-leveldata,weshowthattheempiricalimplicationsofthemodelsofAntra`sandHelpman(2004,2008)holdtrueusingfinerdataatfirm-level.Theliteraturethatanalyzesthefirm’ssourcingstrategyfocusesonthelackofcontractibilityinordertoexplaintheorganizationalchoice.InAntra`s(2003)andAntra`sandHelpman(2008),afinalgoodproducerdecideswhetherto1HSeelmpimnaalnc(o2n0t0r4i,b2u0ti0o8n)sainndclGudroessMmcaLnaraennd(H2e0l0p0)m,anA(n2tr0a`0s2,(22000033,,22000055)).,SAeentSrpa`senacnedr(2005),andHelpman(2006)fordetailedsurveysoftheliterature.1
sourceaspecificintermediateinputthroughanindependentforeignsupplierortointegrateit.Possiblecostsharingforspecificinvestmentsleadstoahold-upproblem.AsemphasizedbyAntra`s(2003),afirm’sorganizationalchoicedependsstronglyontheshareofRelationship-SpecificInputs(RSI)intheindustrythatrequirestheengagementofsuppliers.Inparticular,thefinal-goodproducercanalleviatethehold-upproblembyo"eringthesupplieralargershareofrevenue,byusingoutsourcing,whentheindustryisinten-siveinintermediateinputsproducedbythesupplier.Iftheshareofinputsthatareproducedbythefinal-goodproducerislargeenough,thenitshouldkeeptheresidualrightsofcontrolandshouldintegratethesupplier.Measuringrelashionship-specificityisverychallenging.Afirstinterestingidea,basedontheworkofNunn(2007)hasbeenappliedtothesourcingstrategiesofUSfirmsbyNunnandTrefler(2008).Usingaggregatedata,theypresentevidenceoftheimportanceofrelationship-specificityonindustriesthathavebeenpre-viouslyclassifiedusingRauch(1999).Bernardetal.(2003)approximatetheproducts’contractibilitybasedonthedegreeofintermediationandshowthatithappenstobeveryimportantforthechoiceofsourcing.Thesourcingstrategyinvolvesaseconddimensionwhichrelatestothepro-ductivityofthefirm.AccordingtoHelpmanetal.(2004),themostproduc-tivefirmsaremultinationals.Theyhaveforeigna!liatesandtheyhavethusthepossibilitytosourceinternally.Antra`sandHelpman(2004,2008),showthatthisisindeedthecase.Onlythemostproductivefirmscanhavea!liatesabroadandimporttheirinputsinternally.Usingaggregatedata,Yeaple(2006)showthattheU.S.intra-firmratiotototalimportsispositivelycorrelatedtothesectorproductivitydispersion.Tomiura(2007)isthefirsttoshowalinkbetweenfirm-levelproductivityandtheorganizationmode.HeusesdataonJapanesefirmsandshowsthatJapanesemultinationalsthatoutsourceinter-2