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The Effects of Offshore Assembly on Industry Location: Evidence from U.S. Border Cities

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  • Gordon H. Hanson

Abstract

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.

Suggested Citation

  • Gordon H. Hanson, 1995. "The Effects of Offshore Assembly on Industry Location: Evidence from U.S. Border Cities," NBER Working Papers 5400, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:5400
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    References listed on IDEAS

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    1. Hanson, Gordon H., 2001. "U.S.-Mexico Integration and Regional Economies: Evidence from Border-City Pairs," Journal of Urban Economics, Elsevier, vol. 50(2), pages 259-287, September.
    2. Griliches, Zvi & Hausman, Jerry A., 1986. "Errors in variables in panel data," Journal of Econometrics, Elsevier, vol. 31(1), pages 93-118, February.
    3. Brown, Drusilla K & Deardorff, Alan V & Stern, Robert M, 1992. "North American Integration," Economic Journal, Royal Economic Society, vol. 102(415), pages 1507-1518, November.
    4. 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.
    5. 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.
    6. repec:fth:michin:312 is not listed on IDEAS
    7. 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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    Cited by:

    1. Robert C. Feenstra & Gordon H. Hanson & Deborah L. Swenson, 2000. "Offshore Assembly from the United States: Production Characteristics of the 9802 Program," NBER Chapters,in: The Impact of International Trade on Wages, pages 85-125 National Bureau of Economic Research, Inc.
    2. Deborah Swenson, 2005. "Outsourcing Price Decisions: Evidence from U.S. 9802 Imports," NBER Working Papers 11184, National Bureau of Economic Research, Inc.
    3. Swenson, Deborah L., 2005. "Overseas assembly and country sourcing choices," Journal of International Economics, Elsevier, vol. 66(1), pages 107-130, May.
    4. Hanson, Gordon H, 1998. "North American Economic Integration and Industry Location," Oxford Review of Economic Policy, Oxford University Press, vol. 14(2), pages 30-44, Summer.
    5. Engel, Dirk, 1999. "Der Einfluß der Grenznähe auf die Standortwahl von Unternehmen: Eine theoretische Analyse und empirische Befunde für Ostdeutschland," ZEW Discussion Papers 99-18, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    6. Timothy C. Ford & Brian Logan & Jennifer Logan, 2009. "NAFTA or Nada? Trade's Impact on U.S. Border Retailers," Growth and Change, Wiley Blackwell, vol. 40(2), pages 260-286.
    7. Mine Zeynep Senses, 2006. "The Effects of Outsourcing on the Elasticity of Labor Demand," Working Papers 06-07, Center for Economic Studies, U.S. Census Bureau.
    8. Holmes, Peter & Lopez-Gonzalez, Javier, 2011. "The Nature and Evolution of Vertical Specialisation: What is the Role of Preferential Trade Agreements?," Papers 222, World Trade Institute.

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    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration

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