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U.S. Multinationals and Preferential Market Access

  • Matschke, Xenia
  • Blanchard, Emily

This paper examines the relationship between offshoring activity by U.S. multinational firms and the structure of U.S trade preferences. We combine firm level panel data on U.S. foreign affiliate activity from the U.S. Bureau of Economic Analysis (BEA) with detailed measures of U.S. trade preferences from the U.S. International Trade Commission (USITC) to create a three-way panel that spans 80 industries, 184 countries, and ten years (1997-2006). Consistent with existing theory, we find that offshoring multinational activity and preferential market access are positively and consistently correlated, both in the pooled sample and within countries, industries, and years. Using both instrumental variables and simultaneous equations approaches to address the likely endogeneity of export-oriented foreign investment, we find that each 1 billion in U.S. foreign affiliate exports to the U.S. from a particular industry and country is associated with roughly a 3.5 percentage point increase in the rate of preferential duty free access. Restricting attention to the Generalized System of Preferences (GSP), the dollar-for-dollar influence of multinational affiliate sales on preferential market access declines by roughly a third for the overall sample, but rises by more than an order of magnitude when we restrict attention to potentially GSP eligible countries.

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File URL: http://econstor.eu/bitstream/10419/79751/1/VfS_2013_pid_103.pdf
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Paper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order with number 79751.

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Date of creation: 2013
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Handle: RePEc:zbw:vfsc13:79751
Contact details of provider: Web page: http://www.socialpolitik.org/
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  1. Emily Blanchard, 2006. "Reevaluating the Role of Trade Agreements: Does Investment Globalization Make the WTO Obsolete?," CESifo Working Paper Series 1735, CESifo Group Munich.
  2. Grossman, G.M. & Helpman, E., 1992. "Protection for Sale," Papers 21-92, Tel Aviv.
  3. Ozden, Caglar & Reinhardt, Eric, 2003. "The perversity of preferences : GSP and developing country trade policies, 1976 - 2000," Policy Research Working Paper Series 2955, The World Bank.
  4. Lederman, Daniel & Ozden, Caglar, 2005. "Geopolitical interests and preferential access to U.S. markets," Policy Research Working Paper Series 3531, The World Bank.
  5. Bhagwati, Jagdish N. & Brecher, Richard A. & Dinopoulos, Elias & Srinivasan, T. N., 1987. "Quid pro quo foreign investment and welfare : A political-economy-theoretic model," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 127-138, October.
  6. Kee, Hiau Looi & Olarreaga, Marcelo & Silva, Peri, 2007. "Market access for sale," Journal of Development Economics, Elsevier, vol. 82(1), pages 79-94, January.
  7. Blanchard Emily J, 2007. "Foreign Direct Investment, Endogenous Tariffs, and Preferential Trade Agreements," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 7(1), pages 1-52, November.
  8. Jonah B. Gelbach & Doug Miller, 2009. "Robust Inference with Multi-way Clustering," Working Papers 99, University of California, Davis, Department of Economics.
  9. Bruce Blonigen & Matthew T Cole, 2011. "Optimal Tariffs with FDI: The Evidence," Working Papers 201121, School of Economics, University College Dublin.
  10. A. Colin Cameron & Jonah B. Gelbach & Douglas L. Miller, 2011. "Robust Inference With Multiway Clustering," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 29(2), pages 238-249, April.
  11. Giovanni Maggi & Pinelopi Koujianou Goldberg, 1999. "Protection for Sale: An Empirical Investigation," American Economic Review, American Economic Association, vol. 89(5), pages 1135-1155, December.
  12. Baier, Scott L. & Bergstrand, Jeffrey H., 2004. "Economic determinants of free trade agreements," Journal of International Economics, Elsevier, vol. 64(1), pages 29-63, October.
  13. Bombardini, Matilde & Trebbi, Francesco, 2011. "Votes or money? Theory and evidence from the US Congress," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 587-611, August.
  14. James M. DeVault, 1996. "Political Pressure and the U.S. Generalized System of Preferences," Eastern Economic Journal, Eastern Economic Association, vol. 22(1), pages 35-46, Winter.
  15. Massimo Motta & George Norman, 1993. "Does economic integration cause foreign direct investment?," Economics Working Papers 28, Department of Economics and Business, Universitat Pompeu Fabra.
  16. Magee Christopher S, 2003. "Endogenous Preferential Trade Agreements: An Empirical Analysis," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 2(1), pages 1-19, December.
  17. Kishore Gawande & Usree Bandyopadhyay, 2000. "Is Protection for Sale? Evidence on the Grossman-Helpman Theory of Endogenous Protection," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 139-152, February.
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