Abstract
We develop a model in which the heterogeneous firms in an industry choose their modes of organization and the location of their subsidiaries or suppliers. We assume that the principals of a firm are constrained in the nature of the contracts they can write with suppliers or employees. Our main result concerns the sorting of firms with different productivity levels into different organizational forms. We use the model to examine the implications of falling trade costs for the relevant prevalence of outsourcing and foreign direct investment (FDI).
Original language | English (US) |
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Pages (from-to) | 237-262 |
Number of pages | 26 |
Journal | Journal of International Economics |
Volume | 63 |
Issue number | 2 |
DOIs | |
State | Published - Jul 2004 |
All Science Journal Classification (ASJC) codes
- Finance
- Economics and Econometrics
Keywords
- Direct foreign investment
- Intra-firm trade
- Outsourcing
- Theory of the firm