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Foreign Direct Investment, Geography, and Welfare
September 2024
Working Paper Number:
CES-24-45
We study the impact of FDI on domestic welfare using a model of internal trade with variable markups that incorporates intranational transport costs. The model allows us to disentangle the various channels through which FDI affects welfare. We apply the model to the case of Ethiopian manufacturing, which received considerable amounts of FDI during our study period. We find substantial gains from the presence of foreign firms, both in the local market and in other connected markets in the country. FDI, however, resulted in a modest worsening of allocative efficiency because foreign firms tend to have significantly higher markups than domestic firms. We report consistent findings from our empirical analysis, which utilises microdata on manufacturing firms, information on FDI projects, and geospatial data on improvements in the road network.
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Multinational Firms in the U.S. Economy: Insights from Newly Integrated Microdata
September 2022
Working Paper Number:
CES-22-39
This paper describes the construction of two confidential crosswalk files enabling a comprehensive identification of multinational rms in the U.S. economy. The effort combines firm-level surveys on direct investment conducted by the U.S. Bureau of Economic Analysis (BEA) and the U.S. Census Bureau's Business Register (BR) spanning the universe of employer businesses from 1997 to 2017. First, the parent crosswalk links BEA firm-level surveys on U.S. direct investment abroad and the BR. Second, the affiliate crosswalk links BEA firm-level surveys on foreign direct investment in the United States and the BR. Using these newly available links, we distinguish between U.S.- and foreign-owned multinational firms and describe their prevalence and economic activities in the national economy, by sector, and by geography.
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Global Sourcing and Multinational Activity: A Unified Approach
September 2022
Working Paper Number:
CES-22-36
Multinational firms (MNEs) accounted for 42 percent of US manufacturing employment, 87 percent of US imports, and 84 of US exports in 2007. Despite their disproportionate share of global trade, MNEs' input sourcing and final-good production decisions are often studied separately. Using newly merged data on firms' trade and FDI activity by country, we show that US MNEs are more likely to import not only from the countries in which they have affiliates, but also from other countries within their affiliates' region. We rationalize these patterns in a unified framework in which firms jointly determine the countries in which to produce final goods, and the countries from which to source inputs. The model generates a new source of scale economies that arises because a firm incurs a country specific fixed cost that allows all its assembly plants to source inputs from that country. This shared fixed cost across plants creates interdependencies between firms' assembly and sourcing locations, and leads to non-monotonic responses in third markets to bilateral trade cost changes.
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U.S. Market Concentration and Import Competition
August 2022
Working Paper Number:
CES-22-34
Many studies have documented that market concentration has risen among U.S. firms in recent decades. In this paper, we show that this rise in concentration was accompanied by tougher product market competition due to the entry of foreign competitors. Using confidential census data covering the universe of all firm sales in the U.S. manufacturing sector, we find that rising import competition increased concentration among U.S. firms by reallocating sales from smaller to larger U.S. firms and by causing firm exit. However, this increase in concentration was counteracted by the expansion of foreign firms, which reduced domestic firms' share of the U.S. market inclusive of foreign firms' sales. We find that once the sales of foreign exporters are taken into account, U.S. marketconcentration in manufacturing was stable between 1992 and 2012.
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Two-sided Search in International Markets
January 2022
Working Paper Number:
CES-22-02
We develop a dynamic model of international business-to-business transactions in which sellers and buyers search for each other, with the probability of a match depending on both individual and aggregate search effort. Fit to customs records on U.S. apparel imports, the model captures key cross-sectional and dynamic features of international buyer-seller relationships. We use the model to make several quantitative inferences. First, we calculate the search costs borne by heterogeneous importers and exporters. Second, we provide a structural interpretation for the life cycles of importers and exporters as they endogenously acquire and lose foreign business partners. Third, we pursue counterfactuals that approximate the phaseout of the Agreement on Textiles and Clothing (the 'China shock") and the IT revolution. Lower search costs can significantly improve consumer welfare, but at the expense of importer pro ts. On the other hand, an increase in the population of foreign exporters can congest matching to the extent of dampening or even reversing the gains consumers enjoy from access to extra varieties and more retailers.
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Are Customs Records Consistent Across Countries? Evidence from the U.S. and Colombia
March 2020
Working Paper Number:
CES-20-11
In many countries, official customs records include identifying information on the exporting and importing firms involved in each shipment. This information allows researchers to study international business networks, offshoring patterns, and the micro-foundations of aggregate trade flows. It also provides the government with a basis for tariff assessments at the border. However, there are no mechanisms in place to ensure that the shipment-level information recorded by the exporting country is consistent with the shipment-level information recorded by the importing country. And to the extent that there are discrepancies, it is not clear how prevalent they are or what form they take. In this paper we explore these issues, both to enhance our understanding of the limitations of customs records, and to inform future discussions of possible revisions in the way they are collected.
Specifically, we match U.S.-bound export shipments that appear in Colombian Customs records (DIAN) with their counterparts in the US Customs records (LFTTD): U.S. import shipments from Colombia. Several patterns emerge. First, differences in the coverage of the two countries customs records lead to significant discrepancies in the official bilateral trade flow statistics of these two countries: the DIAN database records 8 percent fewer transactions than the LFTTD database over the sample period, and the average export shipment size in the DIAN is roughly 4 percent smaller than the corresponding import shipment size in the LFTTD. These discrepancies are not due to difference in minimum shipment sizes and they are not particular to a few sectors, though they are more common among small shipments and they evolve over time.
Second, if we rely exclusively on firms' names and addresses, ignoring other shipment characteristics (value, product code, etc.), we are able to match 85 percent of the value of U.S. imports from Colombia in our LFTTD sample with particular Colombian suppliers in the DIAN. Further, fully 97 percent of the value of Colombian exports to the U.S. can be mapped onto particular importers in the U.S. LFTTD.
Third, however, match rates at the shipment level within buyer-seller pairs are low. That is, while buyers and sellers can be paired up fairly accurately, only 25-30 percent of the individual transactions in the customs records of the two countries can be matched using fuzzy algorithms at reasonable tolerance levels.
Fourth, the manufacturer ID (MANUF_ID) that appears in the LFTTD implies there are roughly twice as many Colombian exporters as actually appear in the DIAN. And similar comments apply to an analogous MANUF_ID variable constructed from importer name and address information in the DIAN. Hence studies that treat each MANUF_ID value as a distinct firm are almost surely overstating the number of foreign firms that engage in trade with the U.S. by a substantial amount.
Finally, we conclude that if countries were to require that exporters report standardized shipment identifiers'either invoice numbers or bill of lading/air waybill numbers'it would be far easier to track individual transactions and to identify international discrepancies in reporting.
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Do Institutions Determine Economic Geography?
Evidence from the Concentration of Foreign Suppliers
February 2019
Working Paper Number:
CES-19-05
Do institutions shape the geographic concentration of industrial activity? We explore this question in an international trade setting by examining the relationship between country-level institutions and patterns of spatial concentration of global sourcing. A priori, weak institutions could be associated with either dispersed or concentrated sourcing. We exploit location and transaction data on imports by U.S. firms and adapt the Ellison and Glaeser (1997) index to construct a product-country-specific measure of supplier concentration for U.S. importers. Results show that U.S. importers source in a more spatially concentrated manner from countries with weaker contract enforcement. We find support for the idea that, where formal contract enforcement is weak, local supplier networks compensate by sharing information to facilitate matching and transactions.
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Foreign-Born and Native-Born Migration in the U.S.: Evidence from IRS Administrative and Census Survey Records
July 2018
Working Paper Number:
carra-2018-07
This paper details efforts to link administrative records from the Internal Revenue Service (IRS) to American Community Survey (ACS) and 2010 Census microdata for the study of migration among foreign-born and native-born populations in the United States. Specifically, we (1) document our linkage strategy and methodology for inferring migration in IRS records; (2) model selection into and survival across IRS records to determine suitability for research applications; and (3) gauge the efficacy of the IRS records by demonstrating how they can be used to validate and potentially improve migration responses for native-born and foreign-born respondents in ACS microdata. Our results show little evidence of selection or survival bias in the IRS records, suggesting broad generalizability to the nation as a whole. Moreover, we find that the combined IRS 1040, 1099, and W2 records may provide important information on populations, such as the foreign-born, that may be difficult to reach with traditional Census Bureau surveys. Finally, while preliminary, the results of our comparison of IRS and ACS migration responses shows that IRS records may be useful in improving ACS migration measurement for respondents whose migration response is proxy, allocated, or imputed. Taking these results together, we discuss the potential application of our longitudinal IRS dataset to innovations in migration research on both the native-born and foreign-born populations of the United States.
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Multinationals Offshoring, and the Decline of U.S. Manufacturing
January 2017
Working Paper Number:
CES-17-22
We provide three new stylized facts that characterize the role of multinationals in the U.S. manufacturing employment decline, using a novel microdata panel from 1993-2011 that augments U.S. Census data with firm ownership information and transaction-level trade. First, over this period, U.S. multinationals accounted for 41% of the aggregate manufacturing decline, disproportionate to their employment share in the sector. Second, U.S. multinational-owned establishments had lower employment growth rates than a narrowly-defined control group. Third, establishments that became part of a multinational experienced job losses, accompanied by increased foreign sourcing of intermediates by the parent firm. To establish whether imported intermediates are substitutes or complements for U.S. employment, we develop a model of input sourcing and show that the employment impact of foreign sourcing depends on a key elasticity of firm size to production efficiency. Structural estimation of this elasticity finds that imported intermediates substitute for U.S. employment. In general equilibrium, our estimates imply a sizable manufacturing employment decline of 13%.
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Learning and the Value of Relationships in International Trade
February 2016
Working Paper Number:
CES-16-11
How valuable are long-term supplier relationships? To address this question, this paper explores relationships between U.S. importers and their suppliers abroad. We establish several facts: almost half of U.S. imports involve relationships three years or older, relationship survival and traded quantity increase as a relationship ages, and long-term relationships were more resilient in the 2008-09 financial crisis. We present a model of importer learning and calibrate it using our data. We estimate large differences in the value of relationships across countries. Counterfactuals show that relationships are central to trade dynamics.
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