Björn Thor Arnarson
Magnus T. Buus
Andreas Moxnes
Jakob R. Munch
Chong Xiang
R&R, Journal of Political Economy
Björn Thor Arnarson, Magnus T. Buus, Andreas Moxnes, Jakob R. Munch and Chong Xiang
CESifo Working Paper 12710 · CEPR Discussion Paper 21543 · 2026
@techreport{ArnarsonBuusMoxnesMunchXiang2026,
author = {Arnarson, Bj{\"o}rn Thor and Buus, Magnus Tolum and Moxnes, Andreas and Munch, Jakob Roland and Xiang, Chong},
title = {Growing Together and Apart: Scale Economies and Labor Specialization in Global Value Chains},
institution = {CESifo},
type = {CESifo Working Paper},
number = {12710},
year = {2026},
doi = {10.65864/rekivjv2z7}
}As firms grow, they hand more tasks to their suppliers, and the workforces of firms and suppliers become more specialized. Using Danish data that link firms’ cross-border trade to their employees, we show that this outsourcing makes firms markedly more productive: without it, average labour productivity would be 25 percent lower.
We study how firm growth reorganizes the division of labor across firms in global value chains. Using a novel dataset linking cross-border firm-to-firm transactions to matched employer–employee data, we show that demand shocks increase trade between firms while reducing occupational similarity, implying greater specialization. We develop and estimate a model of task outsourcing in which firms expand by reallocating tasks to suppliers. The model matches the data and implies endogenous scale economies. Eliminating outsourcing reduces average labor productivity by 25 percent and increases input costs by 10 percent, highlighting the central role of specialization in shaping firm performance.
Presented at
European Trade Study Group (ETSG), Exeter, 2026
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