Productivity, Size, and the Disintegration of Industrial Production

I develop a theoretical model of \u85rmssourcing decisions along the pro-ductivity dimension as in Antrás and Helpman (2004), while also incorporat-ing task trade as in Grossman and Rossi-Hansberg (2008). The combination of these two e¤ects permits a framework for sourcing strategies along two di-mensions, which generates results where \u85rms spread the production process of the \u85nal good over several di¤erent sources simultaneously. While repro-ducing the results from the aforementioned models, my model contributes re ned and more detailed predictions. Testing these on \u85rm-level data for Spanish manufacturing \u85rms, I \u85nd strong empirical support for the models predictions. I am grateful to Gaute Torsvik, Gregory Corcos and Wilhelm Kohler for their valueable comments. I would also like to thank Sigurd Birkeland for helpful discussions and suggestions. 97