Research - Stefania Garetto

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"Input Sourcing and Multinational Production" (April 2008)

Abstract. A large portion of world trade happens within firms’ boundaries. This paper proposes a new general equilibrium framework where firms decide whether to outsource to unaffiliated suppliers or to integrate input manufacturing. Multinational corporations and intrafirm trade arise endogenously when firms integrate production in foreign countries. Outsourcing allows to benefit from suppliers’ good technologies, but entails the cost of a mark-up price. Intrafirm sourcing allows to save on mark-ups and to match a firm’s productivity with possibly lower foreign wages. The pricing implications of the theory unveil a positive relationship between the intrafirm share of imports and the degree of differentiation across inputs in a sector, for which I find strong support in the data. Moreover, imperfect competition establishes a link between FDI liberalization and optimal pricing: suppliers find optimal to reduce their prices in response to the possibility of insourced production (the “pro-competition effect” of multinationals). The model is calibrated to match aggregate U.S. trade data, and used to quantify the gains arising from vertical multinational production and intrafirm trade. The computed gains are currently about 1% of consumption per capita, and the model shows that further liberalization can increase them substantially.

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"Firms Trade Options and Incomplete Pass-Through" (October 2007)

Abstract. I develop a model of trade where - due to imperfect competition - firms are reluctant to fully adjust their prices in response to changes in their costs in order not to loose market share to their competitors. The model implies a theory of endogenous mark-ups adjustment with incomplete pass-through and pricing-to-market, and is consistent with a number of empirical facts. I derive predictions for the dependence of pass-through and price fluctuations on the degree of competition in the industry, the extent of barriers to trade and productivity differentials across countries.

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"Heterogeneous Patterns of Technology Adoption: How They May Arise and Their Effects on Growth"(December 2004)

Abstract. This paper addresses the issue of heterogeneity in growth experiences across countries by exploring the investment/technology adoption process as an engine of growth, and providing a tentative explanation of why this process produces diferent realizations across the world. Building on a simplified version of Lucas (1993)'s model, I focus on a technology spillover mechanismn from the more advanced to the less advanced countries and on its effect on resource allocation decisions and (ultimately) on growth. I introduce heterogeneity in the model in order to explain why in many countries convergence did not happen (or at least did not happed yet), and I look for the determinants of different development experiences. Following the spirit of Parente and Prescott (1994) I argue that the source of the heterogeneity in growth patterns is the diferent extent of barriers to the adoption of new technologies.