Code for Production Clustering and Offshoring

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Replication_Package			12/21/2021 02:46:AM

Project Citation:

Tyazhelnikov, Vladimir. Code for Production Clustering and Offshoring. Nashville, TN: American Economic Association [publisher], 2022. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2022-07-19. https://doi.org/10.3886/E148342V1

Project Description

Summary:

I introduce a model of international production that allows the production chain to be of any length or number of sourcing countries, while imposing only weak assumptions on the structure of production and trade costs. The production process does not have to be perfectly sequential, and the final goods can be made from any number of independent subchains. I show that in this model, allocation decisions at different stages of production are interdependent, which generates a new channel of proximity-concentration trade-off. The presence of trade costs makes firms cluster their production in certain countries while trade liberalization allows firms to fragment their production more and exploit productivity differences between countries more efficiently. Clustering patterns depend on the characteristics of the production structure, with stronger clustering associated with longer and less connected structures. Clustering intensity in upstream stages of production is generally higher and less affected by exogenous changes in production structure.

Scope of Project

Subject Terms: Dynamic programming; optimization

JEL Classification:
      C61 Optimization Techniques; Programming Models; Dynamic Analysis
      D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
      F12 Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
      F23 Multinational Firms; International Business
      L14 Transactional Relationships; Contracts and Reputation; Networks

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Published Versions

V1 [2022-07-19]

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