Department of Economics

University of Wisconsin - Madison

Research

Abstract: This paper studies the effects of trade barriers in the internal and the international organization of firms. It builds on the Antràs and Helpman (2004) North-South model in which firms choose from among four organizational form types corresponding to the combined decisions: outsource vs. integrate, and North vs. South. I show that a tariff imposed by the South on the North country's exports of differentiated final goods does not change (1) the productivity cutoffs at which each organizational form is chosen (2) nor the resulting fraction of firms in each of the four organizational form buckets. However, it decreases the resulting mass of entering firms and worsens the South's country terms of trade. In contrast, a tariff on the South country's exports of inputs decreases the productivity cutoffs for firms operating in the North and increases the thresholds for offshoring firms. Additionally, it not only decreases the fraction of firms that source in the South but also decreases the outsourcing-integration ratio in both countries. Finally, both tariffs result in a reduction of the overall volume of international trade.

Tariffs on Final and Intermediate Goods under Global Sourcing

Tariffs, Outsourcing and Offshoring: Could There be a Tariff-driven Organizational Product Cycle?

 

This paper studies the effects of tariffs on outsourcing and offshoring. In a similar framework to that developed by Antràs and Helpman (2004) , I consider a two country North-South model where heterogeneous firms simultaneously decide: (1) outsourcing vs. integration, and (2) offshoring vs. domestic production. In contrast to Antràs and Helpman (2004), Northern entrepreneurs possess some critical inputs (such as blueprints) of differentiated goods and look for managers to produce them -- thus, offshoring will imply moving the production of final goods to the South. I show that a decrease in Northern tariffs produces an increase in outsourcing and offshoring. Conversely, a decrease in Southern tariffs reduces both phenomena. Next, these results imply that trade liberalization processes might be able to generate organizational product cycles. Finally, when we consider both tariffs simultaneously, an increase in any of them will reduce the magnitude of the mentioned effects of the other one.