Multinational Production and Innovation in Tandem
October 2024
Working Paper Number:
CES-24-64
Abstract
Multinational firms colocate production and innovation by offshoring them to the same host country or region. In this paper, I examine the determinants of multinational firms' production and innovation locations. Exploiting plausibly exogenous variations in tariffs, I find complementarities between production and innovation within host countries and regions. To evaluate manufacturing reshoring policies, I develop a quantitative multicountry offshoring location choice model. I allow for rich colocation benefits and cross-country interdependencies and prove supermodularity of the model to solve this otherwise NP-hard problem. I find the effects of manufacturing reshoring policies are nonlinear, contingent upon firm heterogeneity, and they accumulate dynamically.
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:
production,
manufacturing,
export,
subsidiary,
monopolistic,
monopolistically,
tariff,
regional,
factory,
specialization,
innovation,
multinational,
location,
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relocation,
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Annual Survey of Manufactures,
Center for Economic Studies,
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Harvard University,
Bureau of Economic Analysis,
University of Maryland,
Organization for Economic Cooperation and Development,
Penn State University,
Census of Manufacturing Firms,
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Census Bureau Disclosure Review Board,
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