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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

  • Gordon H. Hanson

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, October.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 6184.
    Handle: RePEc:nbr:nberch:6184
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
    Phone: 617-868-3900
    Web page: http://www.nber.org
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    1. Gordon H. Hanson, 1996. "U.S.-Mexico Integration and Regional Economies: Evidence from Border- City Pairs," NBER Working Papers 5425, National Bureau of Economic Research, Inc.
    2. 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.
    3. Brown, D.K. & Deardorff, A.V. & Stern, R.M., 1992. "North American Integration," Working Papers 312, Research Seminar in International Economics, University of Michigan.
    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. Zvi Griliches & Jerry A. Hausman, 1984. "Errors in Variables in Panel Data," NBER Technical Working Papers 0037, National Bureau of Economic Research, Inc.
    6. Mendez, JoseA., 1993. "The welfare effects of repealing the U.S. Offshore Assembly Provision," Journal of International Economics, Elsevier, vol. 34(1-2), pages 1-22, February.
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