Working Paper: NBER ID: w9723
Authors: Gordon H. Hanson; Raymond J. Mataloni Jr.; Matthew J. Slaughter
Abstract: In recent decades, growth of overall world trade has been driven in large part by the rapid growth of trade in intermediate inputs. Much of this input trade involves multinational firms locating input processing in their foreign affiliates, thereby creating global vertical production networks. In this paper, we use firm-level data on U.S. multinationals to examine trade in intermediate inputs for further processing between parent firms and their foreign affiliates. We estimate affiliate demand for imported inputs as a function of host-country and industry trade costs, factor prices, and other variables. Among our main findings are that demand for imported inputs is higher when affiliates face lower trade costs, lower wages for less-skilled labor (both in absolute terms and relative to wages for more-skilled labor), and lower corporate income taxes. These results contrast with many findings in previous research.
Keywords: multinational firms; vertical production networks; trade in intermediate inputs; foreign direct investment
JEL Codes: F2; F1; L1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trade costs (F19) | quantity of imported inputs (F14) |
| labor costs (J30) | quantity of imported inputs (F14) |
| host-country policies (O24) | quantity of imported inputs (F14) |
| corporate tax rates (K34) | quantity of imported inputs (F14) |
| export processing zones (R32) | quantity of imported inputs (F14) |