Working Papers

Decoupling Global Value Chains (with Peter Eppinger, Gabriel Felbermayr and Oliver Krebs). Update of CESifo Working Paper 9079, 2021; supersedes "Covid-19 Shocking Global Value Chains", CESifo Working Paper 8572.
Media coverage: VoxEU, FAZ (German), Ökonomenstimme (German), Atlantico (French). 



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Recent disruptions to global value chains (GVCs) have raised an important question: Can decoupling from GVCs increase a country’s welfare by reducing its exposure to foreign supply shocks? We use a quantitative trade model to simulate GVCs decoupling, defined as increased barriers to global input trade. After decoupling, the repercussions of foreign supply shocks are reduced on average, but some countries experience magnified effects. Across various scenarios, welfare losses from decoupling far exceed any benefits from lower shock exposure. In the U.S., a repatriation of GVCs would reduce national welfare by 2.2% but barely change U.S. exposure to foreign shocks.



Slice to Protect ​(with Peter Eppinger, Alireza Naghavi, and Gianmarco Ottaviano).
​Winner of the INFER Policy Research Award.



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We propose the idea that firms slice up global production processes to protect their know-how. By sourcing fewer inputs from a given supplier, firms avoid the concentration of information in the hands of any individual supplier and thereby reduce the risk of imitation. We study this phenomenon using global and highly granular data on firm-to-firm trade in automotive components. The data reveal a U-shaped relationship between the number of components per supplier (concentration) and intellectual property rights (IPR) protection. This U-shape can be rationalized by a combination of a protective effect and a compositional effect of IPR protection: In countries with very weak IPR protection, firms source only low-tech components, for which imitation is not an issue and concentration is optimal to save fragmentation costs. Improvements in IPR protection induce firms to source more high-tech components, which are susceptible to imitation, so firms ‘slice to protect’ production at intermediate levels of IPR protection. Further improvements in IPR institutions mitigate the imitation risk and increase concentration.




Published and Forthcoming Papers

​Single and Attractive: Uniqueness and Stability of Economic Equilibria under Monotonicity Assumptions (with Patrizio Bifulco, Jochen Glück and Oliver Krebs). Journal of International Economics, 159, 2026.
- Latest Working Paper Version
- Online Appendix



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This paper characterizes equilibrium properties of a broad class of economic models that allow multiple heterogeneous agents to interact in heterogeneous ways across several markets. Our key contribution is a new theorem that provides sufficient conditions for uniqueness, attractivity, and stability of solutions of non-linear equation systems. To illustrate the applicability of our theorem, we characterize the general equilibrium properties of an extended version of the "universal gravity" framework, that comprises a host of seminal trade models. Specifically, we provide conditions for uniqueness, stability, and attractivity when, in line with real-world observations, (i) supply elasticities are allowed to vary by country, or (ii) multiple sectors are introduced. We also provide a practical toolkit for future research on how our theorem can be applied to establish uniqueness, stability, and attractivity of equilibria in a broad set of economic models.



Cultural Distance, Firm Boundaries, and Global Sourcing (with Yuriy Gorodnichenko and Gerard Roland). Journal of Development Economics, 166, 2024.
Featured in: VoxEU.
Winner of the Hans Raupach Best Paper Award.



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Casual observation suggests that cultural differences play an important role in business transactions, yet systematic evidence on this relationship is scarce. This paper provides a novel investigation of the effect of cultural distance on multinational firms’ decisions to integrate their cooperation partners into firm boundaries, rather than transact with independent companies at arm’s-length. To guide our empirical analysis, we develop a simple theoretical model which suggests that (i) cultural distance between contracting parties decreases the relative attractiveness of integration, and (ii) this effect is mitigated in more productive firms. We test these predictions using extensive product-, industry-, and firm-level data. We find a robust negative relationship between cultural distance and the relative attractiveness of integration. In line with our theoretical predictions, we also find that the effect of cultural distance on firm boundaries is less pronounced the higher firm’s productivity.



Contracting Institutions and Firm Integration Around the World (with Peter Eppinger). European Economic Review, 137, 2021.   
- Longer Working Paper Version 
- Online Appendix



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Firm integration is fundamentally shaped by contractual frictions. But do better contracting institutions, reducing these frictions, induce firms to be more or less deeply integrated? To address this question, this paper exploits unique micro data on ownership shares across more than 200,000 firm pairs worldwide, including domestic and cross-border ownership links. We uncover a new stylized fact: Firms choose higher ownership shares in subsidiaries located in countries with better contracting institutions. We develop a Property-Rights Theory of the multinational firm featuring partial ownership that rationalizes this pattern and guides our econometric analysis. The estimations demonstrate that better contracting institutions favor deeper integration, in particular in relationship-specific industries.



A Tale of Two Property Rights: Knowledge, Physical Assets, and Multinational Firm Boundaries. Journal of International Economics​ ​122, 2020.



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The theory of multinational firm boundaries has been shaped by two major paradigms: an earlier one, emphasizing the role of integration in preventing the dissipation of knowledge, and a more recent one, stressing the role of firm boundaries in mitigating underinvestments into relationship-specific assets in the face of contractual incompleteness. This paper develops a novel model encompassing both approaches in a unifying framework. The model predicts that the attractiveness of integration increases in the importance of the parent firm's knowledge capital and decreases in the importance of the affiliate's physical capital in a joint production process. Furthermore, stronger intellectual property rights (IPR) protection in the affiliate's country is predicted to mitigate the effect of knowledge intensity on the attractiveness of integration. I test these hypotheses using unique panel data on more than 100,000 firm pairs worldwide. In line with the model's predictions, knowledge-intensive parent firms choose higher ownership shares in their affiliates, yet this relationship is less pronounced the stronger the IPR protection in the affiliate's country. In addition, higher physical capital intensity of the affiliate is associated with lower ownership shares. These findings are robust to controlling for unobserved heterogeneity across countries, industries, and firms, providing strong support for the unifying theory of multinational firm boundaries.



Offshoring under Uncertainty (with Wilhelm Kohler). European Economic Review 118, 158-180, 2019.



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We develop a theoretical framework explaining firms’ offshoring decisions in the presence of uncertainty. Our model highlights the role of labor market institutions in shaping a firm’s ability to effectively react to future shocks, yielding a sharp prediction of the prevalence of offshoring in a given industry: The propensity of firms to source intermediate inputs from foreign rather than domestic suppliers decreases in the foreign country’s labor market rigidity, and this effect is particularly pronounced in industries with higher volatility. Combining industry-level data on the U.S. offshoring intensity with measures of labor market rigidity and industry volatility, we find empirical evidence strongly supportive of the model’s predictions.



Time is On My Side: Relational Contracts and Aggregate Welfare (with Michael Pflüger). Oxford Economic Papers 71(3), 709–732, 2019.



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This paper develops a simple general equilibrium model which establishes a link between the patience of economic agents and the well-being of nations. We show that firms in long-term oriented countries can mitigate hold-up inefficiencies by engaging with their suppliers in relational contracting – informal agreements sustained by the value of future relationships. Our model predicts that countries with a higher level of patience will exhibit greater economic well-being and higher total factor productivity. We provide empirical evidence in line with the predictions of our theory.



Relational Contracts and Global Sourcing. Journal of International Economics 101, 123-147, 2016.



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Relational contracts – informal agreements sustained by the value of future relationships – are integral parts of global production processes. This paper develops a repeated-game model of global sourcing in which final good producers decide whether to engage with their suppliers in relational contracting and whether to integrate a supplier into a firm’s boundaries or deal with the latter at arm’s-length. The model predicts that the relative prevalence of vertical integration increases in the long-term orientation of the headquarters’ and suppliers’ managers. It further suggests that the share of a foreign subsidiary owned by a final good producer increases in the headquarters’ long-term orientation. Combining industry-level data from the U.S. Census Bureau’s Related Party Trade database with measures for long-term orientation from Hofstede et al. (2010) and the World Management Survey, I find empirical evidence supportive of the positive link between the long-term orientation of cooperation parties and the relative prevalence of vertical integration. Using information on managerial composition of firms and ownership stakes from the Bureau van Dijk’s Orbis database, I find that firms led by long-term oriented managers own higher shares of their foreign subsidiaries.




Book Chapters

Formal and Informal Contracting in Global Sourcing. Chapter 10 in Kohler, W., Yalcin E. (eds.): Developments in Global Sourcing.  Cambridge, MIT Press, 2018.



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This paper introduces relational contracts into a standard framework of global sourcing with partial contractibility to study the joint impact of formal and informal contracting institutions on a multinational firm’s make-or-buy decision. The model suggests that both formal contractibility and relational contracting affect a firm’s internalization decision, yet not necessarily in the same direction. The likelihood of vertical integration increases in the prevalence of relational contracting and in the contractibility of suppliers’ inputs but decreases in the contractibility of headquarters’ activities. Combining data from the U.S. Census Bureau’s Related Party Trade database with proxies for formal and informal contracting, I find empirical evidence supportive of this model’s predictions.




Work in Progress

Opening the Black Box of Quantitative Trade Models (with Peter Eppinger and Oliver Krebs)

Shock Transmission In Multinational Firm Networks (with Peter Eppinger)

Imitation of Multinational Firm Activity in China (with Peter Eppinger, Hong Ma, and Claudia Steinwender)

Dormant Research Papers

Trade, Superstars, and Welfare

The Economics of Gun Crime in the U.S.: Theory and Evidence (with Sebastian Seiffert)