Research / BFI Working PaperAug 07, 2016

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.

More Research From These Scholars

BFI Working Paper Jan 11, 2021

Spatial Economics for Granular Settings

Jonathan Dingel, Felix Tintelnot
Topics:  Uncategorized
BFI Working Paper Aug 19, 2019

The Effects of Foreign Multinationals on Workers and Firms in the United States

Bradley Setzler, Felix Tintelnot
Topics:  Employment & Wages
BFI Working Paper Sep 12, 2022

Foreign Demand Shocks to Production Networks: Firm Responses and Worker Impacts

Magne Mogstad, Felix Tintelnot, Emmanuel Dhyne, Ayumu Ken Kikkawa, Toshiaki Komatsu
Topics:  Employment & Wages