Factor Prices, Factor Substitution and Exporting in US Manufacturing Affiliates Abroad

19 Pages Posted: 29 Jan 2009

See all articles by Maria Borga

Maria Borga

U.S. Bureau of Economic Analysis

Robert E. Lipsey

National Bureau of Economic Research (NBER) at New York (Deceased)

Abstract

This paper uses the unique matched individual parent and affiliate data from the foreign investment survey of the Bureau of Economic Analysis to examine how US firms of different industries and capital intensities at home adapt to lower costs of labour and other host-country characteristics in their foreign production. We find that foreign affiliates of US multinationals carry their parent firms technology with them in producing abroad. That is, affiliates of capital-intensive parents produce in a relatively capital-intensive manner wherever they are located. Despite these resemblances to their parents, affiliates produce in a more labour-intensive manner where labour is cheaper and also where the scale of production is small. We found no evidence that more labour-intensive firms selected production locations where labour was cheaper. Labour costs dominated the methods of production but not its location. Affiliates that export are more responsive in their factor proportions to the labour costs where they produced than affiliates selling only in their host countries. The probability that an affiliate would export, however, did not seem to be much affected by factor proportions. It was much more closely related to the scale of the affiliate's operations; larger affiliates were more likely to be exporters.

Suggested Citation

Borga, Maria and Lipsey, Robert E., Factor Prices, Factor Substitution and Exporting in US Manufacturing Affiliates Abroad. World Economy, Vol. 32, Issue 1, pp. 30-48, January 2009. Available at SSRN: https://ssrn.com/abstract=1334995 or http://dx.doi.org/10.1111/j.1467-9701.2009.01156.x

Maria Borga (Contact Author)

U.S. Bureau of Economic Analysis ( email )

1441 L. Street, NW
Washington, DC 20910
United States

Robert E. Lipsey

National Bureau of Economic Research (NBER) at New York (Deceased)

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