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The Effects of Offshore Assembly on Industry Location: Evidence from U.S. Border Cities

In: The Effects of U.S. Trade Protection and Promotion Policies

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  • Gordon H. Hanson

Abstract

In this paper, I examine how the growth of offshore assembly in Mexico has affected manufacturing activity in U.S. border cities. Under the offshore assembly provision of the U.S. tariff schedule, goods that are assembled abroad using U.S.-manufactured components receive preferential tariff treatment upon reentry into the United States. Foreign assembly plants in Mexico, most of which are owned by U.S.-based multinationals, are overwhelmingly concentrated along the border with the United States. I combine data on employment and earnings in two-digit manufacturing industries for U.S. border cities with data on employment and value added in foreign assembly plants in the corresponding Mexican border cities. I study the effect that the expansion of offshore assembly in a Mexican border city has on durable and nondurable manufacturing activities in the neighboring U.S. border city. The estimation results show strong support for the hypothesis that the growth of export assembly in Mexico increases the demand for manufacturing goods produced in U.S. border cities. Implications of the North American Free Trade Agreement for the U.S.-Mexico border region are discussed.

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This chapter was published in:

  • Robert C. Feenstra, 1997. "The Effects of U.S. Trade Protection and Promotion Policies," NBER Books, National Bureau of Economic Research, Inc, number feen97-1.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 6184.

    Handle: RePEc:nbr:nberch:6184

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    1. Griliches, Zvi & Hausman, Jerry A., 1986. "Errors in variables in panel data," Journal of Econometrics, Elsevier, vol. 31(1), pages 93-118, February.
    2. Brown, D.K. & Deardorff, A.V. & Stern, R.M., 1992. "North American Integration," Working Papers 312, Research Seminar in International Economics, University of Michigan.
    3. repec:fth:michin:312 is not listed on IDEAS
    4. Finger, J M, 1976. "Trade and Domestic Effects of the Offshore Assembly Provision in the U.S. Tariff," American Economic Review, American Economic Association, vol. 66(4), pages 598-611, September.
    5. Grossman, Gene M., 1982. "Offshore assembly provisions and the structure of protection," Journal of International Economics, Elsevier, vol. 12(3-4), pages 301-312, May.
    6. Hanson, Gordon H., 2001. "U.S.-Mexico Integration and Regional Economies: Evidence from Border-City Pairs," Journal of Urban Economics, Elsevier, vol. 50(2), pages 259-287, September.
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    Cited by:
    1. Gordon H. Hanson, 1998. "North American Economic Integration and Industry Location," NBER Working Papers 6587, National Bureau of Economic Research, Inc.
    2. Mine Zeynep Senses, 2006. "The Effects of Outsourcing on the Elasticity of Labor Demand," Working Papers 06-07, Center for Economic Studies, U.S. Census Bureau.
    3. Swenson, Deborah L., 2005. "Overseas assembly and country sourcing choices," Journal of International Economics, Elsevier, vol. 66(1), pages 107-130, May.
    4. Deborah Swenson, 2005. "Outsourcing Price Decisions: Evidence from U.S. 9802 Imports," NBER Working Papers 11184, National Bureau of Economic Research, Inc.
    5. Engel, Dirk, 1999. "Der Einfluß der Grenznähe auf die Standortwahl von Unternehmen: Eine theoretische Analyse und empirische Befunde für Ostdeutschland," ZEW Discussion Papers 99-18, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    6. Agarwal, Jamuna Prasad, 1996. "Does foreign direct investment contribute to unemployment in home countries? An empirical survey," Kiel Working Papers 765, Kiel Institute for the World Economy.

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