An Agent Based Model Of Firms Selling And Sourcing International Decisions With Flexibility To Demand And Supply Shocks

The increasingly global fragmentation of production is a central topic of the international trade economics research agenda. The agent based model presented in this paper tries to combine in a unique coherent schema two usually distinct fields of internationalization analysis: from one side firms’ selling decisions (i.e., the choice to export or to invest directly abroad) and from the other side firms’ sourcing decisions (i.e., the choice to outsource or to produce directly intermediate goods). Therefore, assuming the presence of fixed and variable costs to export and to import, the model is able to reproduce both the exporters and importers firm better performance empirical evidence. Moreover, assuming that production flexibility to shocks is higher with lower capital intensity and it increases when firms outsource their intermediate goods, the model replicates the positive empirical relationship between sectoral capital intensity and imports of intermediate goods from foreign affiliates. The simultaneous study of selling and sourcing decisions might offer useful tools to understand economic processes and gives the opportunity to test the effects of different combinations of trade and industrial policy measures on international division of labor and welfare.