This article provides direct empirical evidence on the relationship between technology and firms’ global sourcing strategies. Using new data on U.S. firms’ decisions to contract for manufacturing services from domestic or foreign suppliers, I show that a firm’s adoption of communication technology between 2002 and 2007 is associated with a 3.1 point increase in its probability of fragmentation. The effect of firm technology also differs significantly across industries; in 2007, it is 20% higher, relative to the mean, in industries with production specifications that are easier to codify in an electronic format. These patterns suggest that technology lowers coordination costs, though its effect is disproportionately higher for domestic rather than foreign sourcing. The larger impact on domestic fragmentation highlights its importance as an alternative to offshoring, and can be explained by complementarities between technology and worker skill. High technology firms and industries are more likely to source from high human capital countries, and the differential impact of technology across industries is strongly increasing in country human capital.

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.

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.

This paper documents the existence and characteristics of US firms that do not manufacture themselves, but nonetheless are heavily involved in the production of goods. These factoryless goods producing firms (FGPFs) are formally in the wholesale sector but, unlike traditional wholesale firms, FGPFs design the goods they sell and coordinate production activities. FGPFs in the wholesale sector are larger and younger, pay higher wages, span more sectors and had more manufacturing employment in previous years compared to traditional wholesalers. FGPFs are more likely to import than typical wholesalers, though their imports constitute a smaller share of their total domestic activity.