Essays on global sourcing with intermediate goods

Production fragmentation allows firms to make production decisions by the unit of intermediate goods. This accelerates the global sourcing activities. Nevertheless, most studies on global sourcing have not recognized the importance of studying intermediate goods. This thesis presents three essays on global sourcing activities with intermediate goods as the basic decision unit to illustrate the unique properties of the sourcing activities based on intermediates.;Chapter 2 developed an incomplete contracts model on a firm's global production of its multiple asymmetric intermediate goods to illustrate the largely ignored demand linkage effect. The model indicates that in addition to the general factors that have been discussed by sourcing models on final goods, the sourcing decision for one individual intermediate good depends on the production of other related intermediates. The results were further illustrated in a complete mapping of the sourcing decision in a two-intermediate case.;Chapter 3 followed the discussion in Chapter 2 and completed it with the supply linkage effect. The model was further extended to a dynamic model based on product cycle and the predictions on linkage effects were tested using the product level data of the U.S. automotive part import. The empirical results are generally consistent with the product cycle theory and the predictions on the linkage effects.;Chapter 1 set up a general equilibrium model with a two-attribute labor sorting mechanism and two available technologies to explain the difference in technology adoption across countries. It indicates that the gap in the skill level of labor endowment contributes to the coexistence of both traditional and modern production in developing countries in contrast with the domination of modern production in developed countries. Furthermore, with trade in intermediate goods that are used by modern technologies, developing countries are able to focus on the production of intermediate goods, leading to the expansion or even the domination of modern production in the economy.