From Torino to Tychy: The Limits of Offshoring in the Car Industry

34 Pages Posted: 27 Jun 2017

See all articles by Keith Head

Keith Head

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

Thierry Mayer

Institut d'Etudes Politiques de Paris (Sciences Po)

Date Written: January 2017

Abstract

This paper estimates the role of country/variety comparative advantage in the decision to offshore assembly of nearly 2000 models of 184 car brands headquartered in 25 countries. While offshoring in the car industry has risen from 2000 to 2013, the top five offshoring brands account for the majority of 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 component of 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 the factor abundance of the headquarters country.

Keywords: Offshoring, car industry, relocation, low wage countries, Italy, France, Poland

JEL Classification: F23

Suggested Citation

Head, Keith and Mayer, Thierry, From Torino to Tychy: The Limits of Offshoring in the Car Industry (January 2017). Centro Studi Luca d'Agliano Development Studies Working Paper No. 417, Available at SSRN: https://ssrn.com/abstract=2992555 or http://dx.doi.org/10.2139/ssrn.2992555

Keith Head (Contact Author)

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

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Vancouver, British Columbia
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HOME PAGE: http://strategy.sauder.ubc.ca/head/

Thierry Mayer

Institut d'Etudes Politiques de Paris (Sciences Po) ( email )

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