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International Fragmentation of Production and the Intrafirm Trade of U.s. Multinational Companies

Author

Listed:
  • Maria Borga
  • William J. Zeile

    (Bureau of Economic Analysis)

Abstract

An aspect of globalization that has attracted increased attention in recent years is trade in intermediate inputs associated with the fragmentation of production across national borders. This trade takes the form of intrafirm transactions when production stages in different countries are performed by vertically integrated units of a multinational firm. Using firm-level data on U.S. multinational companies collected by the U.S. Bureau of Economic Analysis, this paper examines intrafirm shipments of intermediate inputs from U.S. parent companies to their foreign manufacturing affiliates. We relate the propensity of affiliates to source intermediate inputs from their parents to characteristics of the parent company, of the affiliate, and of the affiliate’s host country and industry that we hypothesize will influence the volume of intrafirm trade associated with fragmentation. Our results indicate that this trade is positively related to industry and affiliate characteristics that suggest fragmented production, to host-country characteristics that offer cost advantages, and to parent and affiliate characteristics that favor internalized transactions and the active coordination of different stages of the production process. The signs on the coefficients for a number of variables suggest a division of labor between higher-skilled, or more technologically advanced, activities performed by the parent and lower-skilled, or more rudimentary, activities performed by the affiliate.

Suggested Citation

  • Maria Borga & William J. Zeile, 2004. "International Fragmentation of Production and the Intrafirm Trade of U.s. Multinational Companies," BEA Papers 0035, Bureau of Economic Analysis.
  • Handle: RePEc:bea:papers:0035
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    References listed on IDEAS

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    1. Salvatore Baldone & Fabio Sdogati & Lucia Tajoli, 2001. "Patterns and determinants of international fragmentation of production: Evidence from outward processing trade between the EU and Central Eastern European countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 137(1), pages 80-104, March.
    2. Robert C. Feenstra, 1998. "Integration of Trade and Disintegration of Production in the Global Economy," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 31-50, Fall.
    3. Robert C. Feenstra & Gordon H. Hanson, 1999. "The Impact of Outsourcing and High-Technology Capital on Wages: Estimates For the United States, 1979–1990," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 907-940.
    4. Zhang, Kevin Honglin & Markusen, James R., 1999. "Vertical multinationals and host-country characteristics," Journal of Development Economics, Elsevier, vol. 59(2), pages 233-252, August.
    5. Peter J Buckley & R D Pearce, 1979. "Overseas Production and Exporting by the World's Largest Enterprises: A Study in Sourcing Policy," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 10(1), pages 9-20, March.
    6. Andersson, Thomas & Fredriksson, Torbjorn, 2000. "Distinction between intermediate and finished products in intra-firm trade," International Journal of Industrial Organization, Elsevier, vol. 18(5), pages 773-792, July.
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    Citations

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    Cited by:

    1. Amador, João & Cabral, Sónia, 2008. "International fragmentation of production in the Portuguese economy: What do different measures tell us?," MPRA Paper 9783, University Library of Munich, Germany.
    2. David Hummels & Laura Puzzello, 2010. "Some Evidence on the Nature and Growth of Input Trade," Chapters,in: Input Trade and Production Networks in East Asia, chapter 3 Edward Elgar Publishing.
    3. Giuseppe Bognetti & Michele Santoni, 2010. "Can domestic unions gain from offshoring?," Journal of Economics, Springer, vol. 100(1), pages 51-67, May.
    4. Anna Giunta & Annamaria Nifo & Domenico Scalera, 2012. "Subcontracting in Italian Industry: Labour Division, Firm Growth and the North--South Divide," Regional Studies, Taylor & Francis Journals, vol. 46(8), pages 1067-1083, December.
    5. Amador, João & Cabral, Sónia, 2009. "Vertical specialization across the world: A relative measure," The North American Journal of Economics and Finance, Elsevier, vol. 20(3), pages 267-280, December.
    6. Maria Borga & Robert E. Lipsey, 2009. "Factor Prices, Factor Substitution and Exporting in US Manufacturing Affiliates Abroad," The World Economy, Wiley Blackwell, vol. 32(1), pages 30-48, January.
    7. Ramondo, Natalia & Rappoport, Veronica & Ruhl, Kim J., 2016. "Intrafirm trade and vertical fragmentation in U.S. multinational corporations," Journal of International Economics, Elsevier, vol. 98(C), pages 51-59.
    8. Carol Corrado & Paul Lengermann & Larry Slifman, 2009. "The Contribution of Multinational Corporations to U.S. Productivity Growth, 1977-2000," NBER Chapters,in: International Trade in Services and Intangibles in the Era of Globalization, pages 331-360 National Bureau of Economic Research, Inc.
    9. Richard Baldwin & Toshihiro Okubo, 2014. "Networked FDI: Sales and Sourcing Patterns of Japanese Foreign Affiliates," The World Economy, Wiley Blackwell, vol. 37(8), pages 1051-1080, August.
    10. Alberto López, 2014. "Outsourcing and firm productivity: a production function approach," Empirical Economics, Springer, vol. 47(3), pages 977-998, November.
    11. Blanas, Sotiris, 2012. "Intra-firm trade and employment in US manufacturing," Kiel Advanced Studies Working Papers 458, Kiel Institute for the World Economy (IfW).
    12. Maritza Sotomayor, 2016. "Vertical Specialization of Production: Critical Review and Empirical Evidence for the Mexican Manufacturing Industries 1994-2014," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 6(2), pages 11-28, February.
    13. Sethupathy, Guru, 2013. "Offshoring, wages, and employment: Theory and evidence," European Economic Review, Elsevier, vol. 62(C), pages 73-97.
    14. W. Altzinger, 2008. "Österreichs Multinationalen Unternehmen (MNUs) und deren konzernexterner und - interner Handel," FIW Research Reports series I-023, FIW.
    15. Dietrich, Diemo & Jindra, Björn, 2010. "Corporate governance in the multinational enterprise: A financial contracting perspective," International Business Review, Elsevier, vol. 19(5), pages 446-456, October.
    16. Contessi, Silvio, 2015. "Multinational firms׳ entry and productivity: Some aggregate implications of firm-level heterogeneity," Journal of Economic Dynamics and Control, Elsevier, vol. 61(C), pages 61-80.

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    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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