Misfits in the Car Industry: Offshore Assembly Decisions at the Variety Level

40 Pages Posted: 4 Mar 2019 Last revised: 27 Jun 2024

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)

Multiple version iconThere are 2 versions of this paper

Date Written: February 2019

Abstract

This paper estimates the role of country-variety comparative advantage in the decision to offshore assembly of more than 2000 models of 197 car brands headquartered in 23 countries. While offshoring in the car industry has risen from 2000 to 2016, the top five offshoring brands account for half the 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 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 headquarter country's abundance in these factors.

Suggested Citation

Head, Keith and Mayer, Thierry, Misfits in the Car Industry: Offshore Assembly Decisions at the Variety Level (February 2019). NBER Working Paper No. w25614, Available at SSRN: https://ssrn.com/abstract=3346261

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

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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
21
Abstract Views
421
PlumX Metrics