Supply Chain Geography and Product Quality

We combine four auto data sets to study whether proximity between suppliers and manufacturers affect product quality. Specifically, for a given auto component in a given car model in a given production year, we observe (i) the longitude and latitude of the car's assembly plant, (ii) the longitude and latitude of the component supplier's factories, and (iii) the component's average defect rate. We find that auto components have higher defect rates when the component factory is far from the assembly plant (especially when the component factory is outsourced). This effect is stronger for complex components (those comprising many subcomponents).