International Fragmentation of Production and the Intrafirm Trade of U.S. Multinational Companies

<p>An aspect of globalization that has attracted increased attention in recent years is trade in intermediate inputs associated with the fragmentation of production across national borders. This trade takes the form of intrafirm transactions when production stages in different countries are performed by vertically integrated units of a multinational firm. Using firm-level data on U.S. multinational companies collected by the U.S. Bureau of Economic Analysis this paper examines intrafirm shipments of intermediate inputs from U.S. parent companies to their foreign manufacturing affiliates. We relate the propensity of affiliates to source intermediate inputs from their parents to characteristics of the parent company of the affiliate and of the affiliate's host country and industry that we hypothesize will influence the volume of intrafirm trade associated with fragmentation. Our results indicate that this trade is positively related to industry and affiliate characteristics that suggest fragmented production to host-country characteristics that offer cost advantages and to parent and affiliate characteristics that favor internalized transactions and the active coordination of different stages of the production process. The signs on the coefficients for a number of variables suggest a division of labor between higher-skilled or more technologically advanced activities performed by the parent and lower-skilled or more rudimentary activities performed by the affiliate.</p><p>This work has been selected by scholars as being culturally important and is part of the knowledge base of civilization as we know it. This work was reproduced from the original artifact and remains as true to the original work as possible. Therefore you will see the original copyright references library stamps (as most of these works have been housed in our most important libraries around the world) and other notations in the work.</p><p>This work is in the public domain in the United States of America and possibly other nations. Within the United States you may freely copy and distribute this work as no entity (individual or corporate) has a copyright on the body of the work.</p><p>As a reproduction of a historical artifact this work may contain missing or blurred pages poor pictures errant marks etc. Scholars believe and we concur that this work is important enough to be preserved reproduced and made generally available to the public. We appreciate your support of the preservation process and thank you for being an important part of keeping this knowledge alive and relevant.</p>