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Accounting for the Growth of MNC-Based Trade Using a Structural Model of U.S. MNCs

  • Michael P. Keane
  • Susan E. Feinberg

In recent decades, U.S. foreign trade grew much faster than GDP, but there is no consensus why. Notably lacking is an understanding of the role of multinational corporations (MNCs), which mediate over half of world trade. We use Bureau of Economic Analysis data on U.S. MNCs to study the rapid growth of MNC-based trade from 1983 to 1996. Using a model of U.S. MNCs and Canadian affiliates, we decompose this growth by source. Tariff reductions can largely explain increases in arms-length MNC-based trade. But intra-firm trade growth is attributed mostly to ?technical change.? We present additional evidence suggesting just-in-time production facilitated intra-firm trade. (JEL F13, F14, F23)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.96.5.1515
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File URL: http://www.aeaweb.org/aer/data/dec06/20031095_data.zip
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 96 (2006)
Issue (Month): 5 (December)
Pages: 1515-1558

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Handle: RePEc:aea:aecrev:v:96:y:2006:i:5:p:1515-1558
Note: DOI: 10.1257/aer.96.5.1515
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  1. Avinash K. Dixit & Gene M. Grossman, 1981. "Trade and Protection with Multistage Production," NBER Working Papers 0794, National Bureau of Economic Research, Inc.
  2. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Scholarly Articles 3445092, Harvard University Department of Economics.
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  7. Markusen, James R., 1984. "Multinationals, multi-plant economies, and the gains from trade," Journal of International Economics, Elsevier, vol. 16(3-4), pages 205-226, May.
  8. S. Lael Brainard, 1993. "An Empirical Assessment of the Factor Proportions Explanation of Multi-National Sales," NBER Working Papers 4583, National Bureau of Economic Research, Inc.
  9. Susan E. Feinberg & Michael P. Keane & Mario F. Bognanno, 1998. "Trade Liberalization and Delocalization: New Evidence from Firm-Level Panel Data," Canadian Journal of Economics, Canadian Economics Association, vol. 31(4), pages 749-777, November.
  10. Susan E. Feinberg & Michael P. Keane, 2001. "U.S.-Canada Trade Liberalization And Mnc Production Location," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 118-132, February.
  11. Zvi Griliches & Jacques Mairesse, 1995. "Production Functions: The Search for Identification," Harvard Institute of Economic Research Working Papers 1719, Harvard - Institute of Economic Research.
  12. Haijime Katayama & Shihua Lu & James Tybout, 2003. "Why Plant-Level Productivity Studies are Often Misleading, and an Alternative Approach to Interference," NBER Working Papers 9617, National Bureau of Economic Research, Inc.
  13. James Brander, 1980. "Intra-Industry Trade in Identical Commodities," Working Papers 380, Queen's University, Department of Economics.
  14. Kei-Mu Yi, 2000. "Can vertical specialization explain the growth of world trade?," Staff Reports 96, Federal Reserve Bank of New York.
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