Essays on international trade and firm organization.
PhD thesis, The London School of Economics and Political Science (LSE).
This thesis analyses the impact of globalisation on the boundary of the firm and, in turn, how
outsourcing policies have shaped the reallocation of labour across sectors.
The first chapter ("Outsourcing and the Rise in Services") investigates the impact of out sourcing on sectoral reallocation in the U.S. over the period 1947-2007. Roughly 40% of the
growth of the service sector comes from professional and business services, an industry highly
specialized in the production of intermediates and where most of the service outsourcing activity
is concentrated. As a result, business services have experienced an almost fourfold increase in
their forward linkage, the largest change among all industries. I find that the overall change in
input-output structure of the economy accounts for 33% of the increase in service employment,
and business services outsourcing contributes almost half of that amount.
The second chapter ("Exporting, Coordination Complexity, and Service Outsourcing") investigates the determinants of service outsourcing, and professional and business services in
particular. Drawing on the insights of a model of the boundary of the firm based on adaptation
costs and diminishing return to management, I argue that an increase in coordination complexity (e.g.: more inputs in the production process) leads firms to outsource a higher share of their
total costs and to focus on their core competences. Since country-specific inputs are needed to
export to a particular country (e.g.: a specific advertisement campaign), I proxy coordination
complexity with the number of export destination markets and I find support for the theory
using an extensive dataset of French firms. Over time, firms that export to more countries
increase the amount of purchased business services; the finding is very strong and robust to size
and many other determinants of outsourcing proposed in the literature. The firm-level evidence
also contributes to opening the black box of fixed export costs and to establishing a new causal
link between globalization and structural transformation exploiting plausibly exogenous demand
shifters The third chapter ("Variety Growth, Welfare Gains and the Fall of the Iron Curtain")
analyses two key issues in the literature of international trade: the welfare gains from trade
and the estimation of the elasticity of substitution across goods. In particular I investigate the
welfare gains coming from the increase in the number of varieties in the U.K. I find that the fall
of the Iron Curtain and the expansion of trade with the countries of the former Soviet contribute
for roughly 10% of the total gains. China, in comparison, accounts for 5% of the gains. The
methodology is an improved version of the one proposed by Broda and Weinstein (2006) and
Feenstra (1994), which is more robust to the definition of goods and to the classification used.
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