Research Interests

Working Papers

• Multinational firms' organisational dynamics

Institutions affect the organisation of global value chains (GVCs). I analyse the organisational choices of heterogeneous firms in a model of incomplete contracts and uncertainty about foreign institutions. Under uncertainty, the model shows a sequential offshoring equilibrium path led by the most productive firms in the market. Other firms sequentially follow as the former reveal information about offshore institutional conditions and uncertainty reduces through learning. The sequential offshoring process intensifies competition in final-good markets, affecting the optimal organisation of the GVCs: firms initially choose foreign vertical integration (i.e., FDI), but the stronger progressively competition tilts the balance towards foreign outsourcing (i.e., arm's length trade). Thus, the least productive offshoring firms sequentially shift from foreign integration to foreign outsourcing. Empirical models with sector-level data of US manufacturing sectors provide supportive evidence of the model's predictions.

• Uncertainty in global sourcing: learning, sequential offshoring, and selection patterns (with Mario Larch)

We analyse firms’ sourcing decisions under institutional uncertainty in foreign countries. Firms can reduce their uncertainty by observing offshoring firms’ behaviour. The model characterises a sequential offshoring equilibrium path, led by the most productive firms in the market. With multiple countries, information spillovers drive sourcing location choices, leading to multiple equilibria with implications for countries’ comparative advantages and welfare. Using firm-level data from Colombia, we test for the determinants and timing of offshoring decisions. We also derive spatial probit structural models to identify the firms’ dynamic trade-off when they decide on the offshoring location. We find supportive evidence for the model’s predictions.

Work in Progress

• Exchange rate pass-through and the mode of foreign market entry (with Hartmut Egger, Peter Egger and Katharina Erhardt)

International transactions show diverse patterns of invoicing currencies. Currency choice is an important feature of firms’ exporting decisions, in particular when they face uncertainty about future exchange rates under nominal price rigidities. Using transaction-level data on Swiss manufacturing firms, we observe that the entry mode of firms in foreign markets affects their invoicing-currency choices in those markets. To explain the observed empirical pattern, we set up a multi-country model with oligopolistic market structure, in which firms can serve foreign consumers either by exporting or by foreign investment and local supply. Our model is well equipped to accommodate the empirical finding that foreign investors more likely choose consumer-country currency for invoicing. In our model, we also show that in an environment with exchange rate uncertainty nominal price rigidities increase the attractiveness of choosing multinational production instead of exporting.

• High-frequency gravity (with Mario Larch and Dennis Novy)

International trade flows show strong persistence over time. This is true for yearly data and even more so for higher-frequency data such as monthly data. Standard gravity theory cannot explain the persistence, i.e., why lagged trade flows should enter as an explanatory variable. While some dynamic gravity models have been explored, the dynamics in these models are either driven by country-specific factors (such as capital accumulation or technology) or ad hoc (like assuming bilaterally specific capital). We provide a structural dynamic gravity framework where the persistence stems from firms’ sluggish adjustment of destination-specific prices, akin to sticky pricing a la Calvo (1983). Our theoretical framework provides a micro-foundation for a gravity equation with lagged trade flows as an explanatory variable. Using OECD trade data at high and low frequencies, we document the persistence of trade flows and estimate the parameter governing the share of firms that sluggishly adjust prices. Consistent with the literature on nominal rigidities, we find a high degree of price stickiness at monthly frequency and a lower degree at annual frequency. Our results help to explain the propagation of trade cost shocks to trade, prices, and welfare over the short and long run.

• Capital frictions and ownership in global supply chains (with Hartmut Egger).

• Trade policy uncertainty and the disruption of relational contracts.

• Demand uncertainty in foreign markets. Learning from competitors and sequential market entry (with Victor Gimenez-Perales)