Kiel Working Papers, Kiel Institute for World Economics
No 1591:
Greasing the Wheels of International Commerce: How Services Facilitate Firms' International Sourcing
Peter Debaere, Holger Görg and Horst Raff
Abstract: We use unique plant-level data to study the link between
the local availability of services and the decision of manufacturing firms
to source materials from abroad. To guide our empirical analysis we develop
a monopolitic-competition model of the materials sourcing decisions of
heterogeneous firms. The model generates predictions about how the
intensity of international sourcing of materials depends on a firm's
productivity and the availability of local services. These predictions are
supported by the data. We find evidence that more productive manufacturing
firms tend to have a higher ratio of imported materials to sales. In
addition, we find evidence that services grease the wheels of international
commerce: A greater availability of services across regions, industries and
time increases a firmÄs foreign sourcing of materials relative to sales.
Interestingly, this positive impact of local service availability on
imports especially applies to stand-alone firms that, unlike
multinationals, are less likely to rely on imported or internally provided
services
Keywords: international trade, services, off-shoring, supply chain management, firm heterogeneity; (follow links to similar papers)
JEL-Codes: F12,; L23; (follow links to similar papers)
38 pages, January 2010
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