Global Value Chains and the Crisis: Reshaping International Trade Elasticity?
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decision between insourcing and outsourcing. A model that allows firms to choose between vertical integration and outsourcing, as well as between locating the production at home or in the low-wage South, is proposed by Antràs and Helpman (2004). They point out that the more productive firms source inputs in low-cost countries, whereas less productive firms do so in the high-cost countries of the North. Besides, if both types of firms acquire inputs in the same country, the former insource and the latter outsource. An explanation for the steady increase in outsourcing activities is offered by S¸ener and Zhao (2009), who analyze the globalization process by setting up a dynamic model of trade with endogenous innovation, in which a local-sourcingtargeted and an outsourcing-targeted R&D race take place at the same time. The latter represents the so called “iPod cycle” where firms combine innovation activity with simultaneous outsourcing, a form of R&D strategy that is becoming more and more important. Ornelas and Turner (2008) propose another model that explains the current trend toward foreign outsourcing and intrafirm trade. That the motivation for outsourcing can also be strategic rather than cost-motivated is shown by Chen, Ishikawa, and Yu (2004). They model strategic outsourcing as a response to trade liberalization in the intermediate-product market. Of particular relevance for the present analysis, papers by several authors help to understand the volatility linked to globalized activities. Du, Lu, and Tao (2009) elaborate a model on bi-sourcing, that is, simultaneous outsourcing and insourcing for the same set of inputs, a strategy that is being more and more often adopted by multinational enterprises. The use of this strategy, with the inherent options of preferring either the external or the internal source of intermediate inputs, may explain part of the reduction of trade flows in times of economic crisis. A model of in-house competition, that is, between the different facilities of a multiplant firm, is introduced by Kerschbamer and Tournas (2003). Their model shows that in downturns, firms may decide to produce in the establishment that has higher costs, even when it would also be possible to locate production to the lower-cost facility. The stability of value chain networks is studied in Ostrovsky (2008), who proposes a model of matching in supply chains. The author deduces the sufficient conditions for the existence of stable networks; however, these networks rely on the assumptions of the model of same-side substitutability and cross-side complementarity. Bergin, Feenstra, and Hanson (2009) analyze empirically the volatility of the Mexican export-processing industry compared to their U.S. counterparts with a difference-in-difference approach; they find that, on average, the fluctuations in value-added in the Mexican outsourcing industries are twice as high as in the United States. In addition, the authors propose a theoretical model of outsourcing that can explain this stylized fact.