The share of international trade within firm boundaries varies greatly across countries. This column presents new evidence on how the productivity of a firm affects the choice between vertical integration and outsourcing, as well as between foreign and domestic sourcing. The productivity effects found in Spanish firm-level data suggest that contractual imperfections distort the sourcing of inputs in the global economy, and that firm boundaries emerge in response to mitigate this distortion.
Wilhelm Kohler, Marcel Smolka, Friday, February 20, 2015
Laura Alfaro, Paola Conconi, Harald Fadinger, Andrew Newman, Sunday, October 28, 2012
This paper shows that product prices determine organisational design by studying how trade policy affects vertical integration. The authors construct firm-level indices of vertical integration for a large set of countries and industries and exploit cross-section and time-series variation in import tariffs to examine the impact of prices on organisational choices.
Olaf Unteroberdoerster, Jade Vichyanond, Adil Mohommad, Sunday, June 12, 2011
Persistent global imbalances are raising concerns about the sustainability of the global recovery and economic growth in general. This column argues that a proper appreciation of the influence of exchange rates and demand on global imbalances requires taking into account an important feature of Asia’s trade – cross-border supply chains or “vertical integration”.
Hubert Escaith, Fabien Gonguet, Tuesday, June 16, 2009
How do firm linkages transmit shocks? This column discusses the real and financial transmission mechanisms in the supply chain and financial system that can create troublesome cascades. It applies its logic to the Asia Pacific production chain.