What determines the boundary of multinational firms? According to Williamson (1975), a potential rationale for vertical integration is to facilitate adaptation in a world where uncertainty is resolved over time. This paper offers the first empirical analysis of the impact of adaptation on the boundary of multinational firms. To do so, we first develop a ranking of sectors in terms of their "routineness" by merging two sets of data: (i) ratings of occupations by their intensities in "problem solving" from the U.S. Department of Labor's Occupational Information Network; and (ii) U.S. employment shares of occupations by sectors from the Bureau of Labor Statistics Occupational Employment Statistics. Using U.S. Census trade data, we then demonstrate that, in line with adaptation theories of the firm, the share of intrafirm trade tends to be higher in less routine sectors. This result is robust to inclusion of other variables known to influence the U.S. intrafirm import share such as capital intensity, R&D intensity, relationship specificity, intermediation and productivity dispersion. Our most conservative estimate suggests that a one standard deviation decrease in average routineness raises the share of intrafirm imports by 0.26 standard deviations, or an additional 7% of import value that is intrafirm.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
14668.
Length: Date of creation: Jan 2009 Date of revision: Handle: RePEc:nbr:nberwo:14668
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Find related papers by JEL classification: F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Pol Antràs & Elhanan Helpman, 2003.
"Global Sourcing,"
NBER Working Papers
10082, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Pol Antràs & Esteban Rossi-Hansberg, 2008.
"Organizations and Trade,"
NBER Working Papers
14262, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
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