Three Essays on Global Supply Chains

Firm boundary decision -- the decision of firms to integrate or outsource to one another, has important implications on the distribution of value added along global supply chains. My dissertation contributes to the booming literature on global supply chains in three aspects. Chapter 1 develops a theoretical framework that incorporates scope decisions into a firmâ s production decision. A firm with a larger scope can produce a product with higher functionality, but also faces a more severe holdup problem. In industries where consumers value functionality, high-productivity firms maintain large, integrated production networks. In industries where consumers value cost-efficiency, high-productivity firms maintain small, outsourced production networks. In Chapter 2, I compile an empirical database that shows the coexistence of backward and forward integration. This observation contradicts the traditional assumption that integration is unilateral. To explain this coexistence, I modify the classic model from AntrĂ s and Helpman (2004) to allow for bilateral integration. I show that my model explains the empirical coexistence of backward and forward integration, and it performs much better than all existing models in this literature. In Chapter 3, I explore the impact of institutional quality on firms' boundary decisions. A country with better legal institutions provides better protection to firms by better securing their investments in the event of a legal dispute. Effectively, judicial quality acts as a substitute to integration: with better legal production, firms are less likely to resort to integration as means to mitigate contractual frictions. I provide theoretical and empirical evidence for this hypothesis.Ph.D