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Corporate hierarchies and international trade: Theory and evidence

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  • Marin, Dalia
  • Verdier, Thierry

Abstract

Corporate organization varies within countries and between countries. We develop a theory which explains the variation in levels of decentralization across firms and links it to the trade environment that firms face. We introduce firms with internal hierarchies in a Melitz and Ottaviano (2008) model of international trade. We show that international trade increases the conflict of interest between CEO/owners and middle managers within firms and these eventually lead to decentralized corporate hierarchies. We test the theory with original data on the internal organizations of 2200 Austrian and German firms and find that the empirical evidence is consistent with the model's predictions.

Suggested Citation

  • Marin, Dalia & Verdier, Thierry, 2014. "Corporate hierarchies and international trade: Theory and evidence," Journal of International Economics, Elsevier, vol. 94(2), pages 295-310.
    • Handle: RePEc:eee:inecon:v:94:y:2014:i:2:p:295-310
    DOI: 10.1016/j.jinteco.2014.08.002
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    References listed on IDEAS

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    2. Marin, Dalia & Verdier, Thierry, 2012. "Globalization and the empowerment of talent," Journal of International Economics, Elsevier, vol. 86(2), pages 209-223.
    3. Daron Acemoglu & Philippe Aghion & Rachel Griffith & Fabrizio Zilibotti, 2010. "Vertical Integration and Technology: Theory and Evidence," Journal of the European Economic Association, MIT Press, vol. 8(5), pages 989-1033, September.
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    8. Dalia Marin, 2011. "The Opening Up of Eastern Europe at 20: Jobs, Skills and Reverse Maquiladoras in Austria and Germany," Chapters, in: Miroslav N. Jovanović (ed.), International Handbook on the Economics of Integration, Volume II, chapter 13, Edward Elgar Publishing.
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    16. Marc J. Melitz & Giancarlo I. P. Ottaviano, 2021. "Market Size, Trade, and Productivity," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 4, pages 87-108, World Scientific Publishing Co. Pte. Ltd..
    17. Marc J. Melitz & Gianmarco I. P. Ottaviano, 2008. "Market Size, Trade, and Productivity (DOI:10.111/j.1467-937x.2007.00463.x)," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 75(3), pages 985-985.
    18. Marin, Dalia & Verdier, Thierry, 2007. "Competing in Organizations: Firm Heterogeneity and International Trade," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 207, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
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    24. Marin, Dalia, 2006. "A New International Division of Labour in Europe," CEPR Discussion Papers 5447, C.E.P.R. Discussion Papers.
    25. Raghuram G. Rajan & Julie Wulf, 2006. "The Flattening Firm: Evidence from Panel Data on the Changing Nature of Corporate Hierarchies," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 759-773, November.
    26. Barbara Spencer, 2005. "International outsourcing and incomplete contracts," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1107-1135, November.
    27. Maria Guadalupe & Julie Wulf, 2010. "The Flattening Firm and Product Market Competition: The Effect of Trade Liberalization on Corporate Hierarchies," American Economic Journal: Applied Economics, American Economic Association, vol. 2(4), pages 105-127, October.
    28. Marin, Dalia, 2008. "The New Corporation in Europe," Munich Reprints in Economics 19242, University of Munich, Department of Economics.
    29. Luis Garicano, 2000. "Hierarchies and the Organization of Knowledge in Production," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 874-904, October.
    30. repec:lmu:muench:19230 is not listed on IDEAS
    31. Luis Garicano & Esteban Rossi-Hansberg, 2006. "Organization and Inequality in a Knowledge Economy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(4), pages 1383-1435.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Putin’s War and the German Economic Model
      by Dalia Marin in Project Syndicate on 2022-06-13 12:55:42

    Citations

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    Cited by:

    1. Guillou, Sarah & Treibich, Tania, 2017. "Firm Export Diversification and Change in Workforce Composition," Research Memorandum 026, Maastricht University, Graduate School of Business and Economics (GSBE).
    2. Schymik, Jan Simon, 2015. "Trade, Technologies, and the Evolution of Corporate Governance," Discussion Papers in Economics 24871, University of Munich, Department of Economics.
    3. Sotiris Blanas & Adnan Seric, 2017. "Knowledge Transfer and Intra-Firm Trade," Working Papers 178612931, Lancaster University Management School, Economics Department.
    4. Marin, Dalia & Schymik, Jan & Tarasov, Alexander, 2018. "Trade in tasks and the organization of firms," European Economic Review, Elsevier, vol. 107(C), pages 99-132.
    5. Sarah Guillou & Tania Treibich, 2019. "Firm export diversification and change in workforce composition," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 155(4), pages 645-676, November.
    6. Marin, Dalia & Doerr, Sebastian & Suverato, Davide & Verdier, Thierry, 2020. "Mis-allocation Within Firms: Internal Finance and International Trade," CEPR Discussion Papers 14478, C.E.P.R. Discussion Papers.
    7. Stiebale, Joel & Vencappa, Dev, 2022. "Import competition and vertical integration: Evidence from India," Journal of Development Economics, Elsevier, vol. 155(C).
    8. Chakraborty, Pavel & Raveh, Ohad, 2018. "Input-trade liberalization and the demand for managers: Evidence from India," Journal of International Economics, Elsevier, vol. 111(C), pages 159-176.
    9. Chen, Cheng, 2019. "Trade liberalization, agency problem and aggregate productivity," European Economic Review, Elsevier, vol. 111(C), pages 421-442.
    10. repec:hal:spmain:info:hdl:2441/46os5smni49ctrjp4k4b64p5ur is not listed on IDEAS
    11. Nikolaos Antonakakis & Ioannis Chatziantoniou & George Filis, 2016. "Business Cycle Spillovers in the European Union: What is the Message Transmitted to the Core?," Manchester School, University of Manchester, vol. 84(4), pages 437-481, July.
    12. Xiaoyang Li & Xuan Zhou, 2021. "Autonomy, incentive and trade: How does trade liberalisation reshape corporate decentralisation in China?," The World Economy, Wiley Blackwell, vol. 44(10), pages 3051-3069, October.
    13. Schymik, Jan, 2018. "Globalization and the evolution of corporate governance," European Economic Review, Elsevier, vol. 102(C), pages 39-61.
    14. Saidou Baba Oumar & Salihu Zummo Hayatudeen, 2015. "The Impact of the Unofficial Cattle Business on the Household Welfare of Cattle Traders of the Border Towns of Cameroon and Nigeria," International Journal of Business Administration, International Journal of Business Administration, Sciedu Press, vol. 6(2), pages 146-158, March.

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    More about this item

    Keywords

    International trade with endogenous firm organizations; Decentralized management and trade; Endogenous congruence in the firm; Corporate organization in similar countries; Empirical test of the theory of trading firms;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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