Research

Abstract: We study whether and how the technological importance of an input – measured by its cost share – is related to the decision of whether to “make” or “buy” that input. Using detailed French international trade data and an instrumental variable approach based on self-constructed IO tables, we show that French multinationals vertically integrate those inputs that have high cost shares. A stylized incomplete contracting model with both ex ante and ex post inefficiencies explains why: technologically more important inputs are “made” when transaction cost economics type forces (TCE; favoring integration) overpower property rights type forces (PRT; favoring outsourcing). Additional results related to the contracting environment and headquarters intensity consistent with our theoretical framework show that both TCE and PRT type forces are needed to fully explain the empirical patterns in the data.

Abstract: This paper provides novel empirical evidence of the effects of a plausibly exogenous change in relative factor prices on United States manufacturing production and trade. The shale gas revolution has led to (very) large and persistent differences in the price of natural gas between the United States and the rest of the world reflecting differences in endowment of difficult-to-trade natural gas. Guided by economic theory, empirical tests on output, factor reallocation and international trade are conducted. Results show that U.S. manufacturing exports have grown by about 10 percent on account of their energy intensity since the onset of the shale revolution. We also document that the U.S. shale revolution is operating both at the intensive and extensive margins.

Abstract: Exporting involves market access costs in the form of service inputs that manufacturers can make in-house or buy from external agencies. Using firm-level data from France, we document that as manufacturers export to more destinations, they increasingly outsource market access services. We propose a model where firms balance managerial strain and ex-post adaptation costs to explain this pattern. Empirical evidence based on service-level adaptation and managerial capability supports this mechanism. Calibrating the model to match salient moments in the data, we find that the option to outsource services doubles the variety gains from a 25% trade cost reduction.

Abstract: We study the role of firm heterogeneity and imperfect competition for global production networks and the gains from trade. We develop a quantifiable trade model with two-sided firm heterogeneity, matching frictions, and oligopolistic competition upstream. More productive downstream buyers endogenously match with more upstream suppliers, thereby inducing tougher competition among them and enjoying superior sourcing outcomes. We then present consistent empirical evidence using highly disaggregated data on firms' production and trade transactions for France, Chile and China. Downstream French and Chilean buyers import higher values and quantities at lower prices as upstream Chinese markets become more competitive over time, with stronger responses by larger buyers. Chinese suppliers set lower prices and mark-ups to buyers that source from more suppliers. Counterfactual analyses indicate that lower barriers to entry upstream, lower matching costs, and lower trade costs amplify firm productivity and aggregate welfare downstream, with differential effects across firms. These effects operate through a combination of improved buyer-seller matches, gains from variety, and lower mark-ups. Global production networks thus generate greater impacts and cross-border spillovers from industrial policy and trade liberalization.

Abstract: This paper examines the structure of international Just-in-Time (JIT) supply chains. Using information about JIT supply chain management for a large panel of French manufacturers I first document that JIT is widespread across all industries and accounts for roughly two thirds of aggregate employment and trade. Next, I establish two novel stylized facts about the structure of JIT supply chains: They are more concentrated in space (1) and more vertically integrated both domestically and internationally (2), than their `traditional' counterparts. I rationalize these patterns in a framework of sequential production where failure to coordinate adaptation decisions in the presence of upstream and demand shocks leads to inventory holding. In JIT supply chains, information about downstream demand conditions is shared throughout the supply chain, which facilitates coordination. The associated inventory saving effect is stronger when firms are close to each other, so that the supply chain reacts quickly to changes in demand; and when they are part of the same company, so that incentives for adaptation are aligned. Guided by further predictions of the model, I present empirical evidence that these organizational complementarities depend on inventory holding costs, demand persistence, and the ability to push inventories upstream via contractual penalties. Finally, I discuss long term implications of Brexit and COVID-19 for the structure of international supply chains based on my findings.