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,
regional,
tariff,
factory,
specialization,
innovation,
multinational,
country,
region,
relocation,
outsourcing,
outsource,
location
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Annual Survey of Manufactures,
Center for Economic Studies,
Ordinary Least Squares,
Harvard University,
Bureau of Economic Analysis,
University of Maryland,
Organization for Economic Cooperation and Development,
Census of Manufacturing Firms,
Boston College,
New York University,
North American Industry Classification System,
Harmonized System,
University of Toronto,
University of Michigan,
Census Bureau Disclosure Review Board,
Longitudinal Firm Trade Transactions Database,
Business Research and Development and Innovation Survey,
Federal Statistical Research Data Center,
National Center for Science and Engineering Statistics,
Harvard Business School,
Penn State University
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