Factor Prices and Factor Substitution in U.S. Firms' Manufacturing Affiliates Abroad
32 Pages Posted: 7 May 2004 Last revised: 15 Jul 2010
Date Written: April 2004
Using confidential individual firm data from the Bureau of Economic Analysis survey of U.S. firms' manufacturing operations abroad, we investigate the determinants of capital intensity in affiliate operations. Host country labor cost, the scale of host country production, and the capital intensity of the parent firm's production in the United States, are all significant influences. The parent's capital intensity is the strongest and most consistent determinant of affiliate capital intensity. Affiliates that export are more sensitive to these factors in their choice of factor proportions than affiliates that sell only in their host countries.
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