Research

I build a model of the boundary of the firm incorporating asset ownership to show how firms' organizational form and sourcing systems are complementary. I show that, given that both ``Japanese''-style and ``American''-style sourcing ensure similar quality levels, vertical integration and ``Japanese''-style sourcing are complementary. Sourcing from related parties is more likely to result in a long-term relationship with high-frequency shipments and small shipment sizes. Complementarity is stronger when the upstream firm's assets are more valuable and when the upstream firm is in an industry with greater quality differentiation. Combining the ORBIS data, which provides large-scale firm-to-firm ownership information, with the Panjiva data, which includes all the maritime firm-to-firm transaction records, I provide empirical evidence consistent with these theoretical predictions.

We build a general equilibrium model of endogenous communication, quality control, and trade. The model yields a structural gravity equation in which exogenous communication costs raise the probability of product failure and reduce trade more for products with a lower elasticity of substitution. We treat direct flight connectedness as a key determinant of communication costs and estimate its causal effect on trade using an instrument based on the discontinuity of direct flights at around 6,000 miles created by air travel regulations. Novel data on international business lawsuits show that air connectedness lowers the probability of product failure. Combining the estimates with the model, we quantify the aggregate impact of air connectedness in three episodes: the long-run improvement in air connectedness, the disruption of international travel during the COVID-19 pandemic, and the closure of Russian and Ukrainian airspace after the outbreak of the war in Ukraine.

Using data on both buyer-supplier and owner-subsidiary links between Japanese firms, we characterize the interconnection between production and ownership networks. In the cross-section, we find that the majority of the owner-subsidiary links are also buyer-supplier links, highlighting the role of goods or services transactions in vertical relationships. In addition, we find that firms are more likely to use buyers/suppliers that are already adopted by related parties, suggesting an indirect benefit of integration.