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

  • 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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File URL: http://www.nber.org/papers/w5400.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5400.

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Date of creation: Dec 1995
Date of revision:
Publication status: published as The Effects of US Trade Pretection and Promotion Policies, R. Feenstra, ed. , pp. 297-32, (Chicago: University of Chicago Press, 1997).
Handle: RePEc:nbr:nberwo:5400
Note: ITI
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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. Brown, Drusilla K & Deardorff, Alan V & Stern, Robert M, 1992. "North American Integration," Economic Journal, Royal Economic Society, vol. 102(415), pages 1507-18, November.
  3. 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.
  4. Zvi Griliches & Jerry A. Hausman, 1984. "Errors in Variables in Panel Data," NBER Technical Working Papers 0037, National Bureau of Economic Research, Inc.
  5. 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.
  6. 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.
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