The Margins of Global Sourcing: Theory and Evidence from U.S. Firms
We develop a quantiﬁable multi-country sourcing model in which ﬁrms self-select into importing based on their productivity and country-speciﬁc variables. In contrast to canonical export models where ﬁrm proﬁts are additively separable across destination markets, global sourcing decisions naturally interact through the ﬁrm’s cost function. We show that, under an empirically relevant condition, selection into importing exhibits complementarities across source markets. We exploit these complementarities to solve the ﬁrm’s problem and estimate the model. Comparing counterfactual predictions to reduced-form evidence highlights the importance of interdependencies in ﬁrms’ sourcing decisions across markets, which generate heterogeneous domestic sourcing responses to trade shocks.