We analyze a firm that produces a final good from multiple intermediates that can each be sourced domestically or from a low-wage country. The model explicitly incorporates that sourcing decisions of intermediates are interdependent. Equilibrium predictions depend crucially on a key modeling...

Trends towards international fragmentation of production and modular process technologies have increased the importance of proximity in the supply chain of sophisticated manufactured goods. Using a rich and novel data set for the European automotive industry, we simultaneously evaluate the...