Working Paper: CEPR ID: DP12940
Authors: Thierry Mayer; Keith Head
Abstract: This paper estimates the role of country/variety comparative advantage in the decision to offshore assemblyof 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 halfthe car assembly relocated to low-wage countries. We show that the decision to offshore aparticular car model depends on two types of cost (dis)advantage of the home country relative toforeign locations. The first type, the assembly costs common to all models, isestimated via a structural triadic gravity equation.The second effect, model-level comparative advantage, is an interaction between proxies for themodel's skill and capital intensity and headquarter country's abundance in these factors.
Keywords: offshoring; gravity; cars
JEL Codes: F1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| assembly costs (L23) | offshoring decisions (F23) |
| comparative advantage (F11) | offshoring decisions (F23) |