Antras and Helpman (2004) present a North-South model of international trade where differentiated products are developed in the North. Firms decide whether to integrate into the production of intermediate inputs or outsource them, choosing between domestic and foreign sources. The model shows that firms with different productivity levels choose different ownership structures and supplier locations. The paper examines the effects of within-sectoral heterogeneity and industry characteristics on the prevalence of these organizational forms. The authors analyze the choice between vertical integration, foreign direct investment (FDI), domestic outsourcing, and foreign outsourcing (arm's-length trade). They use data on firms' productivity and sectoral characteristics to determine the optimal organizational form. The model incorporates the costs of relationship-specific investments and the trade-offs between integration and outsourcing. The paper discusses the increasing international disintegration of production, with examples from Mattel and the automotive industry. It highlights the growth of foreign outsourcing and intrafirm trade, and the role of productivity differences in shaping trade patterns. The authors argue that the choice of organizational form depends on the relative intensity of inputs, the wage gap between countries, and the degree of productivity dispersion within sectors. The model is based on a two-sector general equilibrium framework, where firms in the North produce final-good varieties, while suppliers in the South provide intermediate inputs. The model shows that firms with higher productivity tend to integrate in the South, while lower-productivity firms outsource in the North. The paper also examines the effects of variations in productivity, wage rates, and trade costs on the prevalence of different organizational forms. The authors find that in sectors with higher productivity dispersion or lower headquarter intensity, more firms rely on imported intermediates. In sectors with high headquarter intensity, firms with higher productivity are more likely to integrate, while lower-productivity firms outsource. The model shows that the prevalence of different organizational forms depends on the relative costs of integration and outsourcing, the intensity of headquarter services, and the wage gap between countries. The results illustrate the types of issues that can be addressed with the model, including the effects of productivity differences, trade costs, and organizational choices on international trade and foreign direct investment.Antras and Helpman (2004) present a North-South model of international trade where differentiated products are developed in the North. Firms decide whether to integrate into the production of intermediate inputs or outsource them, choosing between domestic and foreign sources. The model shows that firms with different productivity levels choose different ownership structures and supplier locations. The paper examines the effects of within-sectoral heterogeneity and industry characteristics on the prevalence of these organizational forms. The authors analyze the choice between vertical integration, foreign direct investment (FDI), domestic outsourcing, and foreign outsourcing (arm's-length trade). They use data on firms' productivity and sectoral characteristics to determine the optimal organizational form. The model incorporates the costs of relationship-specific investments and the trade-offs between integration and outsourcing. The paper discusses the increasing international disintegration of production, with examples from Mattel and the automotive industry. It highlights the growth of foreign outsourcing and intrafirm trade, and the role of productivity differences in shaping trade patterns. The authors argue that the choice of organizational form depends on the relative intensity of inputs, the wage gap between countries, and the degree of productivity dispersion within sectors. The model is based on a two-sector general equilibrium framework, where firms in the North produce final-good varieties, while suppliers in the South provide intermediate inputs. The model shows that firms with higher productivity tend to integrate in the South, while lower-productivity firms outsource in the North. The paper also examines the effects of variations in productivity, wage rates, and trade costs on the prevalence of different organizational forms. The authors find that in sectors with higher productivity dispersion or lower headquarter intensity, more firms rely on imported intermediates. In sectors with high headquarter intensity, firms with higher productivity are more likely to integrate, while lower-productivity firms outsource. The model shows that the prevalence of different organizational forms depends on the relative costs of integration and outsourcing, the intensity of headquarter services, and the wage gap between countries. The results illustrate the types of issues that can be addressed with the model, including the effects of productivity differences, trade costs, and organizational choices on international trade and foreign direct investment.