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Misfits in the Car Industry: Offshore Assembly Decisions at the Variety Level

Author

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  • Keith Head

    (Sauder School of Business (Columbia University))

  • Thierry Mayer

    (Département d'économie)

Abstract

This paper estimates the role of country-variety comparative advantage in the decision to offshore assembly of more than 2000 models of 197 car brands headquartered in 23 countries. While offshoring in the car industry has risen from 2000 to 2016, the top five offshoring brands account for half the car assembly relocated to low-wage countries. We show that the decision to offshore a particular car model depends on two types of cost (dis)advantage of the home country relative to foreign locations. The first type, the assembly costs common to all models, is estimated via a structural triadic gravity equation. The second effect, model-level comparative advantage, is an interaction between proxies for the model’s skill and capital intensity and headquarter country’s abundance in these factors.

Suggested Citation

  • Keith Head & Thierry Mayer, 2019. "Misfits in the Car Industry: Offshore Assembly Decisions at the Variety Level," Sciences Po publications info:hdl:2441/lmb2g91ru9i, Sciences Po.
  • Handle: RePEc:spo:wpmain:info:hdl:2441/lmb2g91ru9ipp4r5ubgh2jjtr
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    References listed on IDEAS

    as
    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.
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    Cited by:

    1. Charlotte Emlinger & Sébastien Jean & Vincent Vicard, 2019. "L’étonnante atonie des exportations françaises : retour sur la compétitivité et ses déterminants," CEPII Policy Brief 2019-24, CEPII research center.

    More about this item

    Keywords

    Offshoring; Gravity; Multinational Production; Comparative Advantage; Motor Vehicles;

    JEL classification:

    • F1 - International Economics - - Trade

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