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Aggregation Bias in the Measurement of U.S. Global Value Chains
September 2024
Working Paper Number:
CES-24-49
This paper measures global value chain (GVC) activity, defined as imported content of exports, of U.S. manufacturing plants between 2002 and 2012. We assesses the extent of aggregation bias that arises from relying on industry-level exports, imports, and output to establish three results. First, GVC activity based on industry-level data underestimate the actual degree of GVC engagement by ignoring potential correlations between import and export activities across plants within industries. Second, the bias grew over the sample period. Finally, unlike with industry-level measures, we find little slowdown in GVC integration by U.S. manufacturers.
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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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The Rise of Specialized Firms
February 2024
Working Paper Number:
CES-24-06
This paper studies firm diversification over 6-digit NAICS industries in U.S. manufacturing. We find that firms specializing in fewer industries now account for a substantially greater share of production than 40 years ago. This reallocation is a key driver of rising industry concentration. Specialized firms have displaced diversified firms among industry leaders'absent this reallocation concentration would have decreased. We then provide evidence that specialized firms produce higher-quality goods: specialized firms tend to charge higher unit prices and are more insulated against Chinese import competition. Based on our empirical findings, we propose a theory in which growth shifts demand toward specialized, high-quality firms, which eventually increases concentration. We conclude that one should expect rising industry concentration in a growing economy.
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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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The Modern Wholesaler: Global Sourcing, Domestic Distribution, and Scale Economies
December 2018
Working Paper Number:
CES-18-49
Nearly half of all transactions in the $6 trillion market for manufactured goods in the United
States were intermediated by wholesalers in 2012, up from 32 percent in 1992. Seventy percent of this increase is due to the growth of 'superstar' firms - the largest one percent of wholesalers. Structural estimates based on detailed administrative data show that the rise of the largest wholesalers was driven by an intuitive linkage between their sourcing of goods from abroad and an expansion of their domestic distribution network to reach more buyers. Both elements require scale economies and lead to increased wholesaler market shares and markups. Counterfactual analysis shows that despite increases in wholesaler market power, intermediated international trade has two benefits for buyers: directly through buyers' valuation of globally sourced products, and indirectly through the passed-through benefits of wholesaler economies of scale and increased quality.
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The Impact of Information and Communication Technology Adoption on Multinational Firm Boundary Decisions
January 2016
Working Paper Number:
CES-16-01
This paper evaluates the effect of adopting internet-enabled information and communication technology (ICT) adoption on the decision to reorganize production across national borders (foreign boundary decision) by multinational enterprises (MNE). Using a transaction cost framework, we argue that ICT adoption influences foreign boundary decisions by lowering coordination costs both internally and externally for the firm. We propose that the heterogeneity in the technology's characteristics, namely complexity and the production processes' degree of codifiability, moderate this influence. Using a difference-in-differences methodology and exploiting the richness of confidential U.S. Census Bureau microdata, we find that overall ICT adoption is positively associated with greater likelihood of in-house production, as measured by increases in intra-firm trade shares. Furthermore, we find that more complex forms of ICT are associated with larger increases in intra-firm trade shares. Finally, our results indicate that MNEs in industries in which production specifications are more easily codified in an electronic format are less likely to engage in intra-firm relative to arms-length trade following ICT adoption.
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GLOBALIZATION AND TOP INCOME SHARES
February 2014
Working Paper Number:
CES-14-07
How does globalization affect the income gaps between the rich and the poor? This paper presents a new piece of empirical evidence showing that access to the global market, either through exporting or through multinational production, is associated with a higher executive-to-worker pay ratio within the firm. It then builds a model with heterogeneous firms, occupational choice, and executive compensation to model analytically and assess quantitatively the impact of globalization on the income gaps between the rich and the poor. The key mechanism is that the 'gains from trade' are not distributed evenly within the same firm. The compensation of an executive is positively linked to the size of the firm, while the wage paid to the workers is determined in a country- wide labor market. Any extra profit earned in the foreign markets benefits the executives more than the average worker. Counterfactual exercises suggest that this new channel is quantitatively important for the observed surge in top income shares in the data. Using the changes in the volume of trade and multinational firm sales, the model can explain around 33 percent of the surge in top income shares over the past two decades in the United States.
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AN 'ALGORITHMIC LINKS WITH PROBABILITIES' CONCORDANCE FOR TRADEMARKS: FOR DISAGGREGATED ANALYSIS OF TRADEMARK & ECONOMIC DATA
September 2013
Working Paper Number:
CES-13-49
Trademarks (TMs) shape the competitive landscape of markets for goods and services in all countries through branding and conveying information and quality inherent in products. Yet, researchers are largely unable to conduct rigorous empirical analysis of TMs in the modern economy because TM data and economic activity data are organized differently and cannot be analyzed jointly at the industry or sectoral level. We propose an 'Algorithmic Links with Probabilities' (ALP) approach to match TM data to economic data and enable these data to speak to each other. Specifically, we construct a NICE Class Level concordance that maps TM data into trade and industry categories forward and backward. This concordance allows researchers to analyze differences in TM usage across both economic and TM sectors. In this paper, we apply this ALP concordance for TMs to characterize patterns in TM applications across countries, industries, income levels and more. We also use the concordance to investigate some of the key determinants of international technology transfer by comparing bilateral TM applications and bilateral patent applications. We conclude with a discussion of possible extensions of this work, including deeper indicator-level concordances and further analyses that are possible once TM data are linked with economic activity data.
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MEASURING 'FACTORYLESS' MANUFACTURING: EVIDENCE FROM U.S. SURVEYS
August 2013
Working Paper Number:
CES-13-44
'Factoryless' manufacturers, as defined by the U.S. OMB, perform underlying entrepreneurial components of arranging the factors of production but outsource all of the actual transformation activities to other specialized units. This paper describes efforts to measure 'factoryless' manufacturing through analyzing data on contract manufacturing services (CMS). We explore two U.S. firm surveys that report data on CMS activities and discuss challenges with identifying and collecting data on entities that are part of global value chains.
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