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The B.E. Journal of Economic Analysis & Policy

Editor-in-Chief: Jürges, Hendrik / Ludwig, Sandra

Ed. by Auriol , Emmanuelle / Brunner, Johann / Fleck, Robert / Friebel, Guido / Mendola, Mariapia / Requate, Till / Tsui, Kevin / Wichardt, Philipp / Zulehner, Christine

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Sourcing Premia with Incomplete Contracts: Theory and Evidence

Wilhelm K Kohler1 / Marcel Smolka2

1University of Tübingen,

2University of Tübingen,

Citation Information: The B.E. Journal of Economic Analysis & Policy. Volume 11, Issue 1, ISSN (Online) 1935-1682, DOI: 10.2202/1935-1682.2498, February 2011

Publication History

Published Online:
2011-02-02

Abstract

Drawing on Grossman & Helpman (2004) and Antràs & Helpman (2004), we identify general conditions that result in an unambiguous mapping of a firm’s productivity level into the organizational form and location of its input sourcing. Using a detailed 2006-2008 data set for Spanish manufacturing firms, we then establish a number of stylized facts about firm-level heterogeneity in sourcing strategies that have largely gone unnoticed in existing literature on input sourcing. Finally, we explore this heterogeneity through econometric estimation of productivity premia associated with different sourcing strategies. We find a robustly significant premium on a strategy that features offshore production of intermediate inputs through a related party (vertical integration). Lower productivity premia are found for strategies that rely on outsourcing to unrelated parties abroad or on vertical integration within the home economy. Across all specifications employed, estimated mean productivity is lowest for domestic-outsourcing firms.

Keywords: productivity; outsourcing; intra-firm trade; incomplete contracts; firm-level data

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