International Trade and Organization.

• Position: Bureau News

The NBER's Working Group on International Trade and Organization met in Cambridge on April 1. Director Gordon H. Hanson of the University of California, San Diego, organized the meeting, at which these papers were discussed:

Robert C. Feenstra, University of California, Davis and NBER, and Barbara J. Spencer, University of British Columbia and NBER, "Contractual versus Generic Outsourcing: The Role of Proximity"

Dalia Marin, University of Munich, and Thierry Verdier, Centre for Economic Policy Research, "Corporate Hierarchies and International Trade: Theory and Evidence"

Volker Nocke, University of Pennsylvania, and Stephen Yeaple, University of Pennsylvania and NBER, "Endogenizing Firm Scope: Trade Liberalization and the Size Distribution of Multiproduct Firm"

Feenstra and Spencer explore the relationship between proximity of buyers and sellers and the organizational form of outsourcing. Outsourcing can be "contractual"--in which suppliers undertake specific investments--or involve "generic" market transactions. Proximity expands the variety of products sourced through contracts abroad rather than at home, but does not change the range of generic imports. A higher-quality foreign workforce raises the variety of contractual trade, but at the expense of generics. The authors confirm these predictions using data for ordinary versus processing exports from Chinese provinces to destination markets and the predictions of an extended model that allows for multinational production.

Corporate organization varies within a country and across countries with country size. Larger countries have larger firms with flatter more decentralized corporate hierarchies than smaller countries. Firms in larger countries change their corporate organization more slowly than firms in smaller countries. Furthermore, corporate diversity within a country is correlated with the pattern of heterogeneity among firms...