IDEAS home Printed from https://ideas.repec.org/p/red/sed016/131.html
   My bibliography  Save this paper

Brands in Motion: How frictions shape multinational production

Author

Listed:
  • Thierry Mayer

    (Sciences Po)

  • Keith Head

    (University of British Columbia)

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.

Suggested Citation

  • Thierry Mayer & Keith Head, 2016. "Brands in Motion: How frictions shape multinational production," 2016 Meeting Papers 131, Society for Economic Dynamics.
  • Handle: RePEc:red:sed016:131
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. de Sousa, José & Mayer, Thierry & Zignago, Soledad, 2012. "Market access in global and regional trade," Regional Science and Urban Economics, Elsevier, vol. 42(6), pages 1037-1052.
    2. Paulo Guimarães & Octávio Figueirdo & Douglas Woodward, 2003. "A Tractable Approach to the Firm Location Decision Problem," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 201-204, February.
    3. Head, Keith & Mayer, Thierry, 2014. "Gravity Equations: Workhorse,Toolkit, and Cookbook," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 131-195, Elsevier.
    4. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078.
    5. Keith Head & Thierry Mayer, 2013. "What separates us? Sources of resistance to globalization," Canadian Journal of Economics, Canadian Economics Association, vol. 46(4), pages 1196-1231, November.
    6. Jonas Björnerstedt & Frank Verboven, 2016. "Does Merger Simulation Work? Evidence from the Swedish Analgesics Market," American Economic Journal: Applied Economics, American Economic Association, vol. 8(3), pages 125-164, July.
    7. Alexander Schmitt & Johannes Van Biesebroeck, 2013. "Proximity strategies in outsourcing relations: The role of geographical, cultural and relational proximity in the European automotive industry," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 44(5), pages 475-503, June.
    8. Bas, Maria & Mayer, Thierry & Thoenig, Mathias, 2017. "From micro to macro: Demand, supply, and heterogeneity in the trade elasticity," Journal of International Economics, Elsevier, vol. 108(C), pages 1-19.
    9. Karolina Ekholm & Rikard Forslid & James R. Markusen, 2021. "Export-Platform Foreign Direct Investment," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 6, pages 111-130, World Scientific Publishing Co. Pte. Ltd..
    10. Beata Javorcik & Steven Poelhekke, 2017. "Former Foreign Affiliates: Cast Out and Outperformed?," Journal of the European Economic Association, European Economic Association, vol. 15(3), pages 501-539.
    11. Pablo Fajgelbaum & Gene M. Grossman & Elhanan Helpman, 2011. "Income Distribution, Product Quality, and International Trade," Journal of Political Economy, University of Chicago Press, vol. 119(4), pages 721-765.
    12. Acemoglu,Daron & Arellano,Manuel & Dekel,Eddie (ed.), 2013. "Advances in Economics and Econometrics," Cambridge Books, Cambridge University Press, number 9781107016064.
    13. Guy Michaels & Xiaojia Zhi, 2010. "Freedom Fries," American Economic Journal: Applied Economics, American Economic Association, vol. 2(3), pages 256-281, July.
    14. 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.
    15. Jonathan Eaton & Robert Dekle & Samuel Kortum, 2007. "Unbalanced Trade," American Economic Review, American Economic Association, vol. 97(2), pages 351-355, May.
    16. Pinelopi Koujianou Goldberg & Frank Verboven, 2001. "The Evolution of Price Dispersion in the European Car Market," Review of Economic Studies, Oxford University Press, vol. 68(4), pages 811-848.
    17. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
    18. Michael D. König & Dominic Rohner & Mathias Thoenig & Fabrizio Zilibotti, 2017. "Networks in Conflict: Theory and Evidence From the Great War of Africa," Econometrica, Econometric Society, vol. 85, pages 1093-1132, July.
    19. James Levinsohn & Steven Berry & Ariel Pakes, 1999. "Voluntary Export Restraints on Automobiles: Evaluating a Trade Policy," American Economic Review, American Economic Association, vol. 89(3), pages 400-430, June.
    20. Acemoglu,Daron & Arellano,Manuel & Dekel,Eddie (ed.), 2013. "Advances in Economics and Econometrics," Cambridge Books, Cambridge University Press, number 9781107638105.
    21. Andrew Atkeson & Ariel Burstein, 2008. "Pricing-to-Market, Trade Costs, and International Relative Prices," American Economic Review, American Economic Association, vol. 98(5), pages 1998-2031, December.
    22. Rodrigo Adao & Arnaud Costinot & Dave Donaldson, 2017. "Nonparametric Counterfactual Predictions in Neoclassical Models of International Trade," American Economic Review, American Economic Association, vol. 107(3), pages 633-689, March.
    23. Pol Antràs & Teresa C. Fort & Felix Tintelnot, 2017. "The Margins of Global Sourcing: Theory and Evidence from US Firms," American Economic Review, American Economic Association, vol. 107(9), pages 2514-2564, September.
    24. Natalia Ramondo & Andrés Rodríguez-Clare, 2013. "Trade, Multinational Production, and the Gains from Openness," Journal of Political Economy, University of Chicago Press, vol. 121(2), pages 273-322.
    25. Pablo Fajgelbaum & Gene M. Grossman & Elhanan Helpman, 2015. "A Linder Hypothesis for Foreign Direct Investment," Review of Economic Studies, Oxford University Press, vol. 82(1), pages 83-121.
    26. Goldberg, Pinelopi Koujianou, 1995. "Product Differentiation and Oligopoly in International Markets: The Case of the U.S. Automobile Industry," Econometrica, Econometric Society, vol. 63(4), pages 891-951, July.
    27. Fuss, Melvyn & Waverman, Leonard, 1990. "The extent and sources of cost and efficiency differences between U.S. and Japanese motor vehicle producers," Journal of the Japanese and International Economies, Elsevier, vol. 4(3), pages 219-256, September.
    28. repec:oup:qjecon:v:132:y:2016:i:1:p:157-209. is not listed on IDEAS
    29. Alfonso Irarrazabal & Andreas Moxnes & Luca David Opromolla, 2013. "The Margins of Multinational Production and the Role of Intrafirm Trade," Journal of Political Economy, University of Chicago Press, vol. 121(1), pages 74-126.
    30. Federico Ciliberto & Charles Murry & Elie Tamer, 2021. "Market Structure and Competition in Airline Markets," Journal of Political Economy, University of Chicago Press, vol. 129(11), pages 2995-3038.
    31. Smith Jr. , Donald F. & Florida Richard, 1994. "Agglomeration and Industrial Location: An Econometric Analysis of Japanese-Affiliated Manufacturing Establishments in Automotive-Related Industries," Journal of Urban Economics, Elsevier, vol. 36(1), pages 23-41, July.
    32. Felix Tintelnot, 2017. "Global Production with Export Platforms," The Quarterly Journal of Economics, Oxford University Press, vol. 132(1), pages 157-209.
    33. Costas Arkolakis & Natalia Ramondo & Andrés Rodríguez-Clare & Stephen Yeaple, 2018. "Innovation and Production in the Global Economy," American Economic Review, American Economic Association, vol. 108(8), pages 2128-2173, August.
    34. Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2011. "An Anatomy of International Trade: Evidence From French Firms," Econometrica, Econometric Society, vol. 79(5), pages 1453-1498, September.
    35. Matthieu Crozet & Keith Head & Thierry Mayer, 2012. "Quality Sorting and Trade: Firm-level Evidence for French Wine," Review of Economic Studies, Oxford University Press, vol. 79(2), pages 609-644.
    36. Costas Arkolakis & Arnaud Costinot & Andres Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?," American Economic Review, American Economic Association, vol. 102(1), pages 94-130, February.
    37. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 691-751, September.
    38. Matthieu Crozet & Keith Head & Thierry Mayer, 2012. "Quality Sorting and Trade: Firm-level Evidence for French Wine," Review of Economic Studies, Oxford University Press, vol. 79(2), pages 609-644.
    39. Alonso de Gortari, 2019. "Disentangling Global Value Chains," NBER Working Papers 25868, National Bureau of Economic Research, Inc.
    40. Costinot, Arnaud & Rodríguez-Clare, Andrés, 2014. "Trade Theory with Numbers: Quantifying the Consequences of Globalization," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 197-261, Elsevier.
    41. Andrew B. Bernard & Stephen J. Redding & Peter K. Schott, 2011. "Multiproduct Firms and Trade Liberalization," The Quarterly Journal of Economics, Oxford University Press, vol. 126(3), pages 1271-1318.
    42. Bresnahan, Timothy F & Ramey, Valerie A, 1993. "Segment Shifts and Capacity Utilization in the U.S. Automobile Industry," American Economic Review, American Economic Association, vol. 83(2), pages 213-218, May.
    43. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
    44. Hanemann, W Michael, 1984. "Discrete-Continuous Models of Consumer Demand," Econometrica, Econometric Society, vol. 52(3), pages 541-561, May.
    45. Robert C. Feenstra & James A. Levinsohn, 1995. "Estimating Markups and Market Conduct with Multidimensional Product Attributes," Review of Economic Studies, Oxford University Press, vol. 62(1), pages 19-52.
    46. Konstantin Kucheryavyy & Gary Lyn & Andrés Rodríguez-Clare, 2016. "Grounded by Gravity: A Well-Behaved Trade Model with Industry-Level Economies of Scale," NBER Working Papers 22484, National Bureau of Economic Research, Inc.
    47. Keith Head & Thierry Mayer, 2013. "Innis Lecture: What separates us? Sources of resistance to globalization," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 46(4), pages 1196-1231, November.
    48. Acemoglu,Daron & Arellano,Manuel & Dekel,Eddie (ed.), 2013. "Advances in Economics and Econometrics," Cambridge Books, Cambridge University Press, number 9781107016057.
    49. Gene M. Grossman & Esteban Rossi-Hansberg, 2010. "External Economies and International Trade Redux," The Quarterly Journal of Economics, Oxford University Press, vol. 125(2), pages 829-858.
    50. Laura Grigolon & Frank Verboven, 2014. "Nested Logit or Random Coefficients Logit? A Comparison of Alternative Discrete Choice Models of Product Differentiation," The Review of Economics and Statistics, MIT Press, vol. 96(5), pages 916-935, December.
    51. Acemoglu,Daron & Arellano,Manuel & Dekel,Eddie (ed.), 2013. "Advances in Economics and Econometrics," Cambridge Books, Cambridge University Press, number 9781107674165.
    52. Nicola Lacetera & Justin R. Sydnor, 2012. "Would You Buy a Honda Made in the U.S.? The Impact of Production Location on Manufacturing Quality," NBER Working Papers 18005, National Bureau of Economic Research, Inc.
    53. J. M. C. Santos Silva & Silvana Tenreyro, 2006. "The Log of Gravity," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 641-658, November.
    54. Thomas Klier & Daniel P. McMillen, 2008. "Evolving Agglomeration In The U.S. Auto Supplier Industry," Journal of Regional Science, Wiley Blackwell, vol. 48(1), pages 245-267, February.
    55. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    56. Acemoglu,Daron & Arellano,Manuel & Dekel,Eddie (ed.), 2013. "Advances in Economics and Econometrics," Cambridge Books, Cambridge University Press, number 9781107627314.
    57. Acemoglu,Daron & Arellano,Manuel & Dekel,Eddie (ed.), 2013. "Advances in Economics and Econometrics," Cambridge Books, Cambridge University Press, number 9781107016040.
    58. Donald W. K. Andrews & Moshe Buchinsky, 2000. "A Three-Step Method for Choosing the Number of Bootstrap Repetitions," Econometrica, Econometric Society, vol. 68(1), pages 23-52, January.
    59. Gopinath, G. & Helpman, . & Rogoff, K. (ed.), 2014. "Handbook of International Economics," Handbook of International Economics, Elsevier, edition 1, volume 4, number 4.
    60. Timothy F. Bresnahan & Valerie A. Ramey, 1994. "Output Fluctuations at the Plant Level," The Quarterly Journal of Economics, Oxford University Press, vol. 109(3), pages 593-624.
    61. Ramondo, Natalia, 2014. "A quantitative approach to multinational production," Journal of International Economics, Elsevier, vol. 93(1), pages 108-122.
    62. Pablo D. Fajgelbaum, 2011. "Income Distribution, Product Quality and International Trade," 2011 Meeting Papers 415, Society for Economic Dynamics.
    63. Matthieu Crozet & Keith Head & Thierry Mayer, 2012. "Quality Sorting and Trade: Firm-level Evidence for French Wine," Review of Economic Studies, Oxford University Press, vol. 79(2), pages 609-644.
    64. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
    65. Frank Verboven, 1996. "International Price Discrimination in the European Car Market," RAND Journal of Economics, The RAND Corporation, vol. 27(2), pages 240-268, Summer.
    66. Jonathan Eaton & Samuel S. Kortum & Sebastian Sotelo, 2012. "International Trade: Linking Micro and Macro," NBER Working Papers 17864, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Keith Head & Thierry Mayer, 2019. "Brands in Motion: How Frictions Shape Multinational Production," American Economic Review, American Economic Association, vol. 109(9), pages 3073-3124, September.
    2. Scott L. Baier & Amanda Kerr & Yoto V. Yotov, 2018. "Gravity, distance, and international trade," Chapters, in: Bruce A. Blonigen & Wesley W. Wilson (ed.), Handbook of International Trade and Transportation, chapter 2, pages 15-78, Edward Elgar Publishing.
    3. Head, Keith & Mayer, Thierry, 2014. "Gravity Equations: Workhorse,Toolkit, and Cookbook," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 131-195, Elsevier.
    4. 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.
    5. 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.
    6. Keith Head & Barbara J. Spencer, 2017. "Oligopoly in international trade: Rise, fall and resurgence," Canadian Journal of Economics, Canadian Economics Association, vol. 50(5), pages 1414-1444, December.
    7. 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.
    8. Jonathan EATON & Samuel KORTUM & Francis KRAMARZ, 2016. "Firm-to-Firm Trade: Imports, exports, and the labor market," Discussion papers 16048, Research Institute of Economy, Trade and Industry (RIETI).
    9. 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.
    10. Thierry Mayer & Vincent Vicard & Soledad Zignago & Beata Javorcik, 2019. "The cost of non-Europe, revisited," Economic Policy, CEPR;CES;MSH, vol. 34(98), pages 145-199.
    11. Bonfiglioli, Alessandra & Crinò, Rosario & Gancia, Gino, 2021. "International Trade with Heterogeneous Firms: Theory and Evidence," CEPR Discussion Papers 16249, C.E.P.R. Discussion Papers.
    12. Mario Larch & Yoto V. Yotov, 2016. "General Equilibrium Trade Policy Analysis with Structural Gravity," CESifo Working Paper Series 6020, CESifo.
    13. Esposito, Federico, 2020. "Demand Risk and Diversification through International Trade," MPRA Paper 100865, University Library of Munich, Germany.
    14. Flach, Lisandra & Unger, Florian, 2022. "Quality and gravity in international trade," Journal of International Economics, Elsevier, vol. 137(C).
    15. Antonio Navas & Antonella Nocco, 2021. "Trade liberalization, selection, and technology adoption with vertical linkages," Review of International Economics, Wiley Blackwell, vol. 29(4), pages 979-1012, September.
    16. Mariscal, Asier, 2021. "Global ownership patterns," Journal of Economic Dynamics and Control, Elsevier, vol. 131(C).
    17. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2018. "Global Firms," Journal of Economic Literature, American Economic Association, vol. 56(2), pages 565-619, June.
    18. Head, Keith & Mayer, Thierry, 2021. "Poor Substitutes? Counterfactual methods in IO and Trade compared," CEPR Discussion Papers 16762, C.E.P.R. Discussion Papers.
    19. Feenstra, Robert C., 2018. "Restoring the product variety and pro-competitive gains from trade with heterogeneous firms and bounded productivity," Journal of International Economics, Elsevier, vol. 110(C), pages 16-27.
    20. Stephen J. Redding & David E. Weinstein, 2018. "Accounting for Trade Patterns," Working Papers 2018-10, Princeton University. Economics Department..

    More about this item

    JEL classification:

    • J1 - Labor and Demographic Economics - - Demographic Economics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:sed016:131. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/sedddea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Zimmermann (email available below). General contact details of provider: https://edirc.repec.org/data/sedddea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.