Title: Interdependent product cycles for globally sourced intermediates
Authors: Van Biesebroeck, Jo ×
Zhang, Lijun #
Issue Date: 2014
Series Title: Journal of International Economics vol:94 issue:1 pages:143-156
Abstract: We analyze a firmthat produces a final good frommultiple intermediates, each of which can be sourced domestically
or froma low-wage country. Offshoring an intermediate is only profitablewhen it has matured sufficiently
and the savings in production cost outweigh the underinvestment due to incomplete contracts abroad.We derive
how equilibrium sourcing decisions of different intermediates depend on one another. In particular, we demonstrate
that the maturity threshold to offshore additional parts is higher when some other parts are already
sourced from the low-wage country. This prediction is robust to an alternative way of modeling the bargaining
process, but it only holds if foreign suppliers are held sufficiently close to their reservation wage. If suppliers
are able to capture most of the rents, the prediction reverses. Using information on U.S. imports of automotive
parts, we illustrate that for most countries the price at which they first export a part tends to be higher for
parts that are only exported later, consistent with offshoring becoming gradually more difficult.
ISSN: 0022-1996
Publication status: published
KU Leuven publication type: IT
Appears in Collections:Research Center of Econometrics, Leuven
× corresponding author
# (joint) last author

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