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

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