Corresponding author: Emanuel Ornelas, Managerial Economics and Strategy Group, London School of Economics, Houghton Street, London WC2A 2AE, UK. E-mail: firstname.lastname@example.org.
Protection and International Sourcing*
Article first published online: 23 AUG 2011
© 2011 The Author(s). The Economic Journal © 2011 Royal Economic Society
The Economic Journal
Volume 122, Issue 559, pages 26–63, March 2012
How to Cite
Ornelas, E. and Turner, J. L. (2012), Protection and International Sourcing. The Economic Journal, 122: 26–63. doi: 10.1111/j.1468-0297.2011.02462.x
We thank Kyle Bagwell, Paola Conconi, Luis Garicano, Alberto Trejos and especially Bob Staiger and two anonymous referees for comments and suggestions. We also thank seminar participants at ECARES, Erasmus University, Norwegian School of Economics, Tübingen, Nottingham, the 2008 CEP Annual Conference, the 2008 ELSNIT Conference and the 2008 Conference on Trade and Institutions at Seoul National University for their comments. Nathan Converse provided helpful research assistance. Ornelas gratefully acknowledges support from the SCIFI-GLOW project.
- Issue published online: 5 MAR 2012
- Article first published online: 23 AUG 2011
- Submitted: 20 July 2009 , Accepted: 19 May 2011
We study how import protection affects relationship-specific investments, sourcing, organisational choice and welfare. In a property rights model, we show that a tariff on intermediate inputs that discriminates in favour of investing firms increases their bargaining surplus and their marginal returns on investment. Thus, a tariff may improve social welfare by mitigating hold-up problems facing domestic firms. However, a tariff may prompt inefficient organisational choices if foreign suppliers are more productive than domestic suppliers, or if integration costs are low. Tariff revenue, which is external to firms, drives a wedge between the private and social gains to offshoring and integration.