Work in Progress

 Offshoring and Vertical FDI with Heterogeneous Firms

- This paper presents a North-South model with differentiated goods being produced in the North. Each differentiated final good requires both headquarters services and manufacturing services as inputs, and firms are heterogeneous with regards to their productivity levels in providing these inputs. A firm has the option to move its manufacturing production stage to the South and thereby lowering the manufacturing-related component of its variable costs. I investigate two scenarios, which are interpreted to correspond to vertical FDI and offshoring at arm's-length, respectively. In both cases, it is shown that there is a minimum level of productivity in the provision of headquarters services that firms need to reach in order to consider manufacturing in the South. In the case of offshoring, productivity and profit gains are relatively larger for firms with low initial manufacturing productivity. In addition, some firms with very high initial productivity in both aspects may choose not to use offshoring because the increased fixed costs are higher than the savings from lower manufacturing costs. With vertical FDI, all firms beyond a certain management productivity level will move manufacturing to the South. A decrease in the fixed cost of relocating abroad causes profits of the firms that keep manufacturing in the North and consumer prices to decrease.    

Firm Productivity, Innovation and Financial Development (with Era Dabla-Norris and Geneviève Verdier)

- This paper studies the link between innovative activity and firm productivity and also the influence financial sector development has on this link. Using a firm-level data set with about 14,000 observations covering 63 countries, we find evidence suggesting that firms that have undertaken some kind of product or process innovation in the recent past have higher productivity. This finding is robust to using various productivity measures and we address endogeneity and causality concerns by using geographic area averages rather than firm-specific innovation measures. In addition, we find the productivity increasing effect of innovation to be stronger in countries with a relatively more developed financial sector. This result may reflect the ability of a more developed banking sector to select higher quality firms and/or higher quality R&D projects.

 View or download a preliminary version of the article here.

Trade Finance and "Deglobalization" (with Mark A. Wynne)

- This is a recently started project studying the impact of the oft-reported drying up of trade finance on global trade volumes.

 See Economic Letter article from November 2009.

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