Productivity, Size, and the Disintegration of Industrial Production

I develop a theoretical model of firms’sourcing decisions along the productivity 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 effects permits a framework for sourcing strategies along two dimensions, which generates results where firms spread the production process of the final good over several different sources simultaneously. While reproducing the results from the aforementioned models, my model contributes refined and more detailed predictions. Testing these on firm-level data for Spanish manufacturing firms, I find strong empirical support for the model's predictions.Outsourcing; Productivity; Production processes