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CEP discussion paper
International buyers' sourcing and suppliers' markups in Bangladeshi garments
Julia Cajal-Grossi, Rocco Macchiavello and Guillermo Noguera January 2019
Paper No' CEPDP1598:
Full Paper (pdf)

JEL Classification: L11; L14; D23; F63

Tags: markups; sourcing strategies; global buyers; buyer-driven value chains

Large international buyers play a key role in global value chains. We exploit detailed transaction-level data on the usage of material inputs to study how Bangladeshi garment suppliers' markups vary across international buyers. We find substantial dispersion in markups across export orders of a given seller for the same product. Buyer effects explain a significant share of this variation, while destination effects do not. Buyers adopting relational sourcing strategies pay higher markups than non-relational buyers. This pattern holds within seller-product-year combinations, is robust to controlling for the buyer's size, traded volumes, and quality, and, together with larger volumes, implies higher profits for suppliers dealing with relational buyers.