Working Paper: NBER ID: w25614
Authors: Keith Head; Thierry Mayer
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.
Keywords: offshoring; automotive industry; comparative advantage; assembly costs; labor markets
JEL Codes: F1; F23
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) |
| model-level comparative advantage (F11) | offshoring decisions (F23) |
| higher skill intensity models (J24) | offshoring decisions (F23) |
| high assembly costs (L23) | offshoring decisions (F23) |