Working Paper

The Dynamics of Global Sourcing

Abstract: This paper studies an import model that incorporates both static crosscountry interdependence and dynamic dependence in firm-level decisions. I find that the benefit of sourcing from one country increases as a firm imports from more countries. Furthermore, using a partial identification approach under the revealed preferences assumption, I provide evidence for the sunk costs of importing, which make establishing relationships with new sellers costlier than maintaining existing ones. The coexistence of cross-country interdependence and sunk costs implies that temporary trade policy changes can have long-lasting effects on both the targeted and non-targeted markets through firm-level decisions.

Keywords: Intermediate goods; Imports; Sunk costs; Exit and entry; Interdependence; Partial identification;

JEL Classification: F10; L20;

https://doi.org/10.17016/IFDP.2022.1337

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: International Finance Discussion Papers

Publication Date: 2022-02-16

Number: 1337