Greasing the Wheels of International Commerce: How Services Facilitate Firm's International Sourcing

42 Pages Posted: 18 Feb 2010

See all articles by Peter Marcel Debaere

Peter Marcel Debaere

University of Virginia - Darden School of Business; Centre for Economic Policy Research (CEPR)

Holger Görg

University of Kiel; Kiel Institute for the World Economy

Horst Raff

Christian-Albrechts-Universitaet zu Kiel; CESifo (Center for Economic Studies and Ifo Institute); Kiel Institute for the World Economy

Date Written: February 2010

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 monopolistic-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 firm’s 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

JEL Classification: F12, L23

Suggested Citation

Debaere, Peter Marcel and Gorg, Holger and Raff, Horst, Greasing the Wheels of International Commerce: How Services Facilitate Firm's International Sourcing (February 2010). CESifo Working Paper Series No. 2941, Available at SSRN: https://ssrn.com/abstract=1553629

Peter Marcel Debaere

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

HOME PAGE: http://www.darden.virginia.edu/html/direc_detail.aspx?styleid=2&id=5794

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Holger Gorg

University of Kiel ( email )

Olshausenstr. 40
D-24118 Kiel, Schleswig-Holstein 24118
Germany

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, Schleswig-Hosltein D-24100
Germany

Horst Raff (Contact Author)

Christian-Albrechts-Universitaet zu Kiel ( email )

Institut fur Volkswirtschaftslehre
Wilhelm-Seelig-Platz 1
Kiel, 24098
Germany
+49-431-880-1582 (Phone)
+49-431-880-3150 (Fax)

HOME PAGE: http://www.wiso.uni-kiel.de/vwlinstitute/Raff/?page=raff

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, Schleswig-Hosltein D-24100
Germany

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