“Brands in Motion: Estimating Multinational Frictions in the Car Industry” by Keith Head
University of British Columbia
We use disaggregated data on car assembly and trade to estimate recent models of multinational production. In addition to the trade costs and multinational production frictions emphasized in past work, we incorporate a third friction: regardless of production origin, demand decreases with greater geographic separation between headquarters and market. The interactions of these three frictions are key determinants of the magnitude and qualitative features of multinational production. We explore different theory-based specifications under which these frictions can be estimated. Our results help to explain why offshoring in the industry remains limited and takes a very different form from that seen in consumer electronics.