(Tuesday, 19th May 2015)
Download the presentation - 2.64 MB
In recent years, we have witnessed a gradual disintegration of production processes across borders. More and more firms organize production on a global scale and choose to offshore parts, components or services to producers in foreign and often distant countries. A distinctive feature of modern-day international trade flows is the fact that the parts and components being transacted across borders are frequently customized to the needs of their intended buyers. This makes these transactions particularly reliant on contracting, precisely in situations in which the transacting parties are located in different countries and thus subject to distinct legal systems.
My lecture will explore the role of contractual frictions in shaping the international organization of production and the implications of these frictions for the workings of the world economy. Special emphasis will be placed on the role of the internalization decision in sequential production processes. I will discuss theoretical models, but will also cover empirical work that demonstrates the empirical relevance of contractual factors in the global production decisions of firms.
Specific papers on sequential production