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Brands in Motion: How frictions shape multinational production

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  • Keith Head
  • Thierry Mayer

Abstract

We use disaggregated data on car assembly and trade to estimate a model of multinational production. Our framework delineates four theory-based specifications under which all frictions relevant to multinational production can be structurally estimated. In addition to the trade costs and multinational production frictions emphasized in past work, we incorporate a third friction: regardless of production origin, it is more difficult to make sales in markets that are geographically separated from the brand's headquarters. The estimation transparently recovers internally consistent estimates of each type of friction cost. With structural parameters in hand, we investigate the consequences of three trade integration experiments: TPP, TTIP, and Brexit. We show that each type of friction makes a qualitative and quantitative difference in the reallocation of production caused by economic integration.

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  • Keith Head & Thierry Mayer, 2015. "Brands in Motion: How frictions shape multinational production," Working Papers 2015-26, CEPII research center.
  • Handle: RePEc:cii:cepidt:2015-26
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    3. Coşar, A. Kerem & Grieco, Paul L.E. & Li, Shengyu & Tintelnot, Felix, 2018. "What drives home market advantage?," Journal of International Economics, Elsevier, vol. 110(C), pages 135-150.
    4. Swati Dhingra & Gianmarco Ottaviano & Veronica Rappoport & Thomas Sampson & Catherine Thomas, 2018. "UK trade and FDI: A post‐Brexit perspective," Papers in Regional Science, Wiley Blackwell, vol. 97(1), pages 9-24, March.
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    8. Bohn, Timon & Brakman, Steven & Dietzenbacher, Erik, 2021. "From exports to value added to income: Accounting for bilateral income transfers," Journal of International Economics, Elsevier, vol. 131(C).
    9. Alviarez, Vanessa, 2019. "Multinational production and comparative advantage," Journal of International Economics, Elsevier, vol. 119(C), pages 1-54.
    10. Davies, Ronald B. & Studnicka, Zuzanna, 2018. "The heterogeneous impact of Brexit: Early indications from the FTSE," European Economic Review, Elsevier, vol. 110(C), pages 1-17.
    11. Gumpert, Anna & Li, Haishi & Moxnes, Andreas & Ramondo, Natalia & Tintelnot, Felix, 2020. "The life-cycle dynamics of exporters and multinational firms," Journal of International Economics, Elsevier, vol. 126(C).
    12. Isaiah Andrews & Matthew Gentzkow & Jesse M. Shapiro, 2020. "Transparency in Structural Research," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 38(4), pages 711-722, October.
    13. Stefania Garetto & Lindsay Oldenski & Natalia Ramondo, 2019. "Multinational Expansion in Time and Space," NBER Working Papers 25804, National Bureau of Economic Research, Inc.
    14. Head, Keith & Mayer, Thierry, 2019. "Misfits in the car industry: Offshore assembly decisions at the variety level," Journal of the Japanese and International Economies, Elsevier, vol. 52(C), pages 90-105.
    15. Head, Keith & Mayer, Thierry, 2019. "Misfits in the car industry: Offshore assembly decisions at the variety level," Journal of the Japanese and International Economies, Elsevier, vol. 52(C), pages 90-105.
    16. Nelson Lind & Natalia Ramondo, 2018. "Innovation, Knowledge Diffusion, and Globalization," NBER Working Papers 25071, National Bureau of Economic Research, Inc.
    17. Emily Blanchard & Amelia U. Santos-Paulino & Claudia Trentini & Emanuel Milet, . "Implications of rising trade tensions for FDI projects," UNCTAD Transnational Corporations Journal, United Nations Conference on Trade and Development.
    18. Wang, Zi, 2021. "Headquarters gravity: How multinationals shape international trade," Journal of International Economics, Elsevier, vol. 131(C).
    19. Thomas Sampson, 2017. "Brexit: The Economics of International Disintegration," CESifo Working Paper Series 6668, CESifo.
    20. Sampson, Thomas, 2017. "Brexit: the economics of international disintegration," LSE Research Online Documents on Economics 86591, London School of Economics and Political Science, LSE Library.
    21. Sandra Bernick & Richard Davies & Anna Valero, 2017. "UK Growth: A New Chapter," CEP Special Papers 28b, Centre for Economic Performance, LSE.
    22. Naveen Rai & Lena Suchanek & Maria Bernier, 2018. "Does Outward Foreign Investment Matter for Canadian Productivity? Evidence from Greenfield Investments," Staff Working Papers 18-31, Bank of Canada.
    23. Nicolas Morales, 2019. "High-Skill Migration, Multinational Companies, and the Location of Economic Activity," Working Paper 19-20, Federal Reserve Bank of Richmond.

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    Keywords

    Multinational Production; Gravity; Structural Estimation;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade

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