Brands in Motion: How Frictions Shape Multinational Production

59 Pages Posted: 4 Sep 2015

See all articles by Keith Head

Keith Head

University of British Columbia (UBC) - Division of Strategy and Business Economics

Thierry Mayer

Sciences Po

Multiple version iconThere are 2 versions of this paper

Date Written: August 2015

Abstract

We use disaggregated data on car assembly and trade to estimate a model of multinational production. Our framework delineates four theory-based specifications under which all frictions relevant to multinational production can be structurally estimated. In addition to the trade costs and multinational production frictions emphasized in past work, we incorporate a third friction: regardless of production origin, it is more difficult to make sales in markets that are geographically separated from the brand's headquarters. The estimation transparently recovers internally consistent estimates of each type of friction cost. With structural parameters in hand, we investigate the consequences of three trade integration experiments: TPP, TTIP, and Brexit. We show that each type of friction makes a qualitative and quantitative difference in the reallocation of production caused by economic integration.

Keywords: cars, gravity, multinational production model, regional integration, structural estimation

JEL Classification: F1

Suggested Citation

Head, Keith and Mayer, Thierry, Brands in Motion: How Frictions Shape Multinational Production (August 2015). CEPR Discussion Paper No. DP10797. Available at SSRN: https://ssrn.com/abstract=2655483

Keith Head (Contact Author)

University of British Columbia (UBC) - Division of Strategy and Business Economics ( email )

2053 Main Mall
Vancouver, British Columbia
Canada

HOME PAGE: http://strategy.sauder.ubc.ca/head/

Thierry Mayer

Sciences Po ( email )

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