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Vertical Production Networks in Multinational Firms

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  • Gordon H. Hanson
  • Raymond J. Mataloni
  • Matthew J. Slaughter

Abstract

In recent decades, growth of overall world trade has been driven in large part by the rapid growth of trade in intermediate inputs. Much of this input trade involves multinational firms locating input processing in their foreign affiliates, thereby creating global vertical production networks. In this paper, we use firm-level data on U.S. multinationals to examine trade in intermediate inputs for further processing between parent firms and their foreign affiliates. We estimate affiliate demand for imported inputs as a function of host-country and industry trade costs, factor prices, and other variables. Among our main findings are that demand for imported inputs is higher when affiliates face lower trade costs, lower wages for less-skilled labor (both in absolute terms and relative to wages for more-skilled labor), and lower corporate income taxes. These results contrast with many findings in previous research.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9723.

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Date of creation: May 2003
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Publication status: published as Gordon H. Hanson & Raymond J. Mataloni & Matthew J. Slaughter, 2005. "Vertical Production Networks in Multinational Firms," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 664-678, November.
Handle: RePEc:nbr:nberwo:9723

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