Vertical Production Networks in Multinational Firms

42 Pages Posted: 26 May 2003 Last revised: 2 Nov 2010

See all articles by Gordon H. Hanson

Gordon H. Hanson

University of California, San Diego (UCSD) - Graduate School of International Relations and Pacific Studies (IRPS); National Bureau of Economic Research (NBER)

Raymond J. Mataloni

U.S. Department of Commerce

Matthew J. Slaughter

Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)

Date Written: May 2003

Abstract

In recent decades, growth of overall world trade has been driven in large part by the rapid growth of trade in intermediate inputs. Much of this input trade involves multinational firms locating input processing in their foreign affiliates, thereby creating global vertical production networks. In this paper, we use firm-level data on U.S. multinationals to examine trade in intermediate inputs for further processing between parent firms and their foreign affiliates. We estimate affiliate demand for imported inputs as a function of host-country and industry trade costs, factor prices, and other variables. Among our main findings are that demand for imported inputs is higher when affiliates face lower trade costs, lower wages for less-skilled labor (both in absolute terms and relative to wages for more-skilled labor), and lower corporate income taxes. These results contrast with many findings in previous research.

Suggested Citation

Hanson, Gordon H. and Mataloni, Raymond J. and Slaughter, Matthew J., Vertical Production Networks in Multinational Firms (May 2003). NBER Working Paper No. w9723. Available at SSRN: https://ssrn.com/abstract=410650

Gordon H. Hanson (Contact Author)

University of California, San Diego (UCSD) - Graduate School of International Relations and Pacific Studies (IRPS) ( email )

9500 Gilman Drive
La Jolla, CA 92093-0519
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Raymond J. Mataloni

U.S. Department of Commerce ( email )

Bureau of Economic Analysis (BEA)
Washington, DC
United States

Matthew J. Slaughter

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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