U.S. exports and multinational production

Huiwen Lai, Susan Chun Zhu

Research output: Journal article publicationJournal articleAcademic researchpeer-review

10 Citations (Scopus)

Abstract

This paper presents a monopolistic competition model of trade and multinational production that incorporates asymmetric trade barriers and international differences in production costs. The model predicts the functional form for the dependence of U.S. exports and multinational production on tariffs, distance, and production costs. To deal with simultaneity, we estimate the nonlinear equations of U.S. exports and multinational production simultaneously. In the estimation, we also include country fixed effects and allow for endogenous location choice by firms. The estimation yields reasonable estimates of the structural parameters, including the elasticity of substitution. Based on the estimates, we then simulate the effects of trade liberalization. We find that the elimination of tariffs worldwide would increase U.S. exports by 3.0% and U.S. multinational production by 21.7%. This large expansion of U.S. overseas production mainly results from an expected increase in the number of U.S. foreign affiliates in response to tariff reductions.
Original languageEnglish
Pages (from-to)531-548
Number of pages18
JournalReview of Economics and Statistics
Volume88
Issue number3
DOIs
Publication statusPublished - 1 Aug 2006
Externally publishedYes

ASJC Scopus subject areas

  • Social Sciences (miscellaneous)
  • Economics and Econometrics

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