Information Technology and Global Sourcing

This paper examines how IT influences global sourcing decisions. It develops a theoretical model to study how IT determines the decisions of firms located in the high-wage North whether to offshore production to a low-wage country in the South. Offshoring to South however is subject to costly communication reflected by partially incomplete contracting. More sophisticated IT allows more efficient communication between the Northern headquarter and its Southern intermediate input supplier and alleviates contractual frictions. The model provides several predictions about the impact of IT on the organization of the global supply chain. Complex industries for which codifiability and verifiability of information is a much harder task, are more likely to source intermediate inputs in countries with more efficient IT infrastructure. Considering the mode of firm organization, more efficient IT infrastructure is expected to reduce the share of intra-firm trade in more complex industries. These predictions are examined and validated using disaggregated industry-level trade data. Most importantly, these findings are robust to controlling for well-known sources of comparative advantage and determinants of firm organization such as factor endowments, financial development and contract enforcement

Information Technology and Global Sourcing

This paper examines how IT influences global sourcing decisions. It develops a theoretical model to study how IT determines the decisions of firms located in the high-wage North whether to offshore production to a low-wage country in the South. Offshoring to South however is subject to costly communication reflected by partially incomplete contracting. More sophisticated IT allows more efficient communication between the Northern headquarter and its Southern intermediate input supplier and alleviates contractual frictions. The model provides several predictions about the impact of IT on the organization of the global supply chain. Complex industries for which codifiability and verifiability of information is a much harder task, are more likely to source intermediate inputs in countries with more efficient IT infrastructure. Considering the mode of firm organization, more efficient IT infrastructure is expected to reduce the share of intra-firm trade in more complex industries. These predictions are examined and validated using disaggregated industry-level trade data. Most importantly, these findings are robust to controlling for well-known sources of comparative advantage and determinants of firm organization such as factor endowments, financial development and contract enforcement

Import Competition and the Composition of Firm Investments

We study how foreign competition affects the composition of investments inside firms. A parsimonious model predicts that firms have an incentive to shift their investments towards more short-term assets when exposed to tougher competition. Using data on expenditures of listed US companies into various asset classes with different lifespans, we document empirical evidence that is consistent with this prediction. Over a fifteen year period between 1995 and 2009, the rise in import competition is associated with a reduction of the firm-specific asset lifespan by about 4.5% on average. We additionally exploit the Chinese WTO accession as an exogenous shock in firm expectations about future exposure to competition

Import Competition and the Composition of Firm Investments

We study how foreign competition affects the composition of investments inside firms. A parsimonious model predicts that firms have an incentive to shift their investments towards more short-term assets when exposed to tougher competition. Using data on expenditures of listed US companies into various asset classes with different lifespans, we document empirical evidence that is consistent with this prediction. Over a fifteen year period between 1995 and 2009, the rise in import competition is associated with a reduction of the firm-specific asset lifespan by about 4.5% on average. We additionally exploit the Chinese WTO accession as an exogenous shock in firm expectations about future exposure to competition