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Service offshoring and export experience

Berlingieri, Giuseppe, Marcolin, Luca and Ornelas, Emanuel (2021) Service offshoring and export experience. CEP Discussion Papers (1775). Centre for Economic Performance, LSE, London, UK.

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Abstract

Service inputs are a key component of the costs of exporting, and contribute to explain the process of internationalization of firms. A new dataset on the participation of French firms in global value chains reveals that firms with longer export experience in a market are more likely to source service inputs from there. We rationalize this fact in a model where firms are initially uncertain about how successful they are as exporters, but learn their export profitability as they keep selling abroad. Because offshoring requires larger sunk costs than domestic sourcing, some firms decide to offshore only when they become sufficiently confident about their export prospects, i.e., once they acquire enough export experience. More export experience in a foreign destination also induces firms to offshore within the boundaries of the firm rather than at arm's length. The model further implies that firms are more likely to offshore when frictions in the provision of services between the domestic and the foreign market are greater. In turn, offshoring firms sell greater volumes, display less volatility, and are less likely to exit foreign markets. Exploiting our novel dataset, we provide strong empirical support for each of these predictions.

Item Type: Monograph (Discussion Paper)
Official URL: https://cep.lse.ac.uk/_new/publications/discussion...
Additional Information: © 2021 The Authors
Divisions: Centre for Economic Performance
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HF Commerce
H Social Sciences > HD Industries. Land use. Labor
JEL classification: F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies
F - International Economics > F1 - Trade > F14 - Country and Industry Studies of Trade
F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms; International Business
L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L22 - Firm Organization and Market Structure: Markets vs. Hierarchies; Vertical Integration; Conglomerates; Subsidiaries
L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L23 - Organization of Production
L - Industrial Organization > L8 - Industry Studies: Services > L84 - Personal, Professional, and Business Services
Date Deposited: 17 Mar 2022 12:18
Last Modified: 18 Mar 2022 00:04
URI: http://eprints.lse.ac.uk/id/eprint/114380

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