We develop a quantifiable multi-country sourcing model in which firms self-select into importing based on their productivity and country-specific variables. In contrast to canonical export models where firm profits are additively separable across destination markets, global sourcing decisions naturally interact through the firm's cost function. We show that, under an empirically relevant condition, selection into importing exhibits complementarities across source markets. We exploit these complementarities to solve the firm's problem and estimate the model. Comparing counterfactual predictions to reduced-form evidence highlights the importance of interdependencies in firms' sourcing decisions across markets, which generate heterogeneous domestic sourcing responses to trade shocks. (JEL D24, F14, F23, L14, L21)

We present a comprehensive data set on the bilateral activity of multinational firms, with focus on two variables: affiliate revenues and the number of affiliates across country pairs. Our basic data are from UNCTAD and include 59 countries, an average over 1996-2001. We implement an extrapolation procedure that fills in missing values using, alternately, FDI stocks and the bilateral number of M&A transactions. Our dataset allows for the analysis of new patterns of multinational production activities across countries, by taking into account firm rather than balance of payment variables, and both the intensive and extensive margins of multinational activities.

Abstract Multinational firms (MNEs) dominate trade flows, yet their foreign production decisions are often ignored in firm-level studies of exporting and importing. Using newly merged data on U.S. firms’ trade and global production, we show that MNEs are more likely to trade with countries that are proximate to their affiliates. We rationalize these patterns with a new source of firm-level scale economies that arises when fixed costs to source from, or sell in, a market are shared across the MNE’s plants. These shared fixed costs create interdependencies between firms’ production and trade locations that generate third-market responses to trade policy changes.

Using a microlevel data set of wind turbine installations in Denmark and Germany, we estimate a structural oligopoly model with cross-border trade and heterogeneous firms. Our approach separately identifies border-related from distance-related variable costs and bounds the fixed cost of exporting for each firm. In the data, firms’ market shares drop precipitously at the border. We find that 40% to 50% of the gap can be attributed to national border costs. Counterfactual analysis indicates that eliminating national border frictions would increase total welfare in the wind turbine industry by 4% in Denmark and 6% in Germany.

Abstract We examine how many and what kind of firms ultimately rely on foreign inputs, sell to foreign markets, and are affected by trade shocks. To capture that firms can trade indirectly by buying from or selling to domestic firms that import or export, we use Belgian data with information on both domestic firm-to-firm sales and foreign trade transactions. We find that most firms use a lot of foreign inputs, but only a small number of firms show that dependence through direct imports. While direct exporters are rare, a majority of firms are indirectly exporting. In most firms, however, indirect export is quantitatively modest, and sales at home are the key source of revenue. We show that what matters for the transmission of foreign demand shocks to a firm’s revenue is how much the firm ultimately sells to foreign markets, not whether these sales are from direct or indirect export.

We quantify the firm responses and real wage effects of foreign demand shocks. We use Belgian microdata to construct firm-specific measures of demand shocks, which capture that firms pass on foreign demand shocks to domestic suppliers. Our estimates of firm responses to these shocks suggest that firms face upward-sloping labor supply curves and have sizable fixed labor costs. We specify a general equilibrium model with these features to quantify the aggregate effects of simulated tariff shocks on wages. We find that ignoring fixed labor costs substantially underestimates aggregate effects on wages, whereas incorporating upward-sloping labor supply appears less consequential. (JEL D22, F13, F16, J22, J31, J42, L25)