We investigate the role of a firm?s total factor productivity in its decision to import from their affiliates rather than from independent input suppliers. We propose a slightly modified version of the Antras and Helpman (2004) model. We assume higher fixed costs under outsourcing and a firm-specific production function. We use detailed French firm-level data that provides a geographical breakdown of French firms? import at product level and their sourcing modes in 1999. We find strong empirical support for the theoretical predictions of the model. In particular, high-productivity firms that have a production process intensive in suppliers? inputs source their inputs through independent foreign suppliers.

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December 2007     Paper Number CEPDP0842

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This CEP discussion paper is published under the centre's Trade programme.