Working Paper: NBER ID: w0482
Authors: Irving B. Kravis; Robert E. Lipsey
Abstract: The location of overseas manufacturing production by U.S. firms seems to have been strongly influenced by common factors that operate in all industries: notably proximity to the United States and to other markets. Within industries, the choices made by parent firms among locations appear to show a tendency of "opposites attract," with low-wage and low-capital-intensity parents choosing high-wage, high-capital intensity countries and high-wage, high-capital-intensity parents making the opposite choice. Production for export seems to have been most strongly attracted by large internal markets in host countries. Economies of scale in production presumably made large markets also economical as export bases. Another factor was high trade propensities of host countries, which we interpret as representing access to imported materials at low world prices or better transport, finance, and other trade facilities. Labor cost seems to have been a weak influence on location choices. U.S. firms tended to export from high-wage countries but the high productivity in such countries more than offset the high wages. However, labor cost, to the extent we could measure it, was not in general a major influence on the location of export production.
Keywords: Multinational Firms; Production Location; Export Production
JEL Codes: F23; M16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Proximity to the United States and other markets (F69) | Location choices of U.S. multinational firms (F23) |
| Low-wage, low-capital intensity firms (D22) | Invest in high-wage, high-capital intensity countries (F21) |
| Production for export (F10) | Countries with large internal markets (O57) |
| High productivity in high-wage countries (O49) | Offset high labor costs (J39) |
| Trade propensities and access to world prices (F16) | Location decisions of U.S. multinational firms (F23) |
| Labor costs (J30) | Location decisions of U.S. multinational firms (F23) |