Firms, Contracts, and Trade Structure The Harvard community has made this article openly available. Please share how this access benefits you. Your story matters

Roughly one-third of world trade is intraŽrm trade. This paper starts by unveiling two systematic patterns in the volume of intraŽrm trade. In a panel of industries, the share of intraŽrm imports in total U. S. imports is signiŽcantly higher, the higher the capital intensity of the exporting industry. In a cross section of countries the share of intraŽrm imports in total U. S. imports is signiŽcantly higher, the higher the capital-labor ratio of the exporting country. I then show that these patterns can be rationalized in a theoretical framework that combines a Grossman-Hart-Moore view of the Žrm with a Helpman-Krugman view of international trade. In particular, I develop an incomplete-contracting, property-rights model of the boundaries of the Žrm, which I then incorporate into a standard trade model with imperfect competition and product differentiation. The model pins down the boundaries of multinational Žrms as well as the international location of production, and it is shown to predict the patterns of intraŽrm trade identiŽed above. Econometric evidence reveals that the model is consistent with other qualitative and quantitative features of the data.

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