-
Trade Within Multinational Boundaries
July 2025
Working Paper Number:
CES-25-46
We leverage newly linked data from the U.S. Census Bureau and the U.S. Bureau of Economic Analysis to study transactions within U.S. multinational enterprises (MNEs). We show that using administrative data on intrafirm trade allows us to correct for measurement error in survey data and to identify the positive relationship between input-output (IO) linkages and the probability of trade between U.S. parents and their foreign affiliates. We also document the prevalence of intrafirm trade: more than half (three-quarters) of affiliates worldwide (in North America) export to or import from their U.S. parent. Our findings provide strong empirical support for traditional theories of firm boundaries that predict trade between vertically linked units of the same firm, and underscore the importance of accounting for the trade frictions that shape MNEs' regional supply chains.
View Full
Paper PDF
-
An Anatomy of U.S. Establishments' Trade Linkages in Global Value Chains
June 2025
Working Paper Number:
CES-25-44
Global value chains (GVC) are a pervasive feature of modern production, but they are hard to measure. Using confidential microdata from the U.S. Census Bureau, we develop novel measures of the linkages between U.S. manufacturing establishments' imports and exports. We find that for every dollar of exports, imported inputs represent 13 cents in 2002 and 20 cents by 2017. Examining GVC trade flows in a gravity framework, we find that these flows are higher within 'round-trip' (input and output market is the same) linkages, regional trade agreements, and multinational firm boundaries. The strong complementarities between input and output markets are muted by the proportionality assumptions embedded in global input-output tables. Finally, with an off-the-shelf model, we show the round-trip results can be obtained when firm-specific sourcing and exporting fixed costs are linked.
View Full
Paper PDF
-
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.
View Full
Paper PDF
-
Import Competition and Firms' Internal Networks
September 2021
Working Paper Number:
CES-21-28
Using administrative data on U.S. multisector firms, we document a cross-sectoral propagation of the import competition from China ('China shock') through firms' internal networks: Employment of an establishment in a given industry is negatively affected by China shock that hits establishments in other industries within the same firm. This indirect propagation channel impacts both manufacturing and non-manufacturing establishments, and it operates primarily through the establishment exit. We explore a range of explanations for our findings, highlighting the role of within-firm trade across sectors, scope of production, and establishment size. At the sectoral aggregate level, China shock that propagates through firms' internal networks has a sizable impact on industry-level employment dynamics.
View Full
Paper PDF
-
How Wide Is the Firm Border?
January 2017
Working Paper Number:
CES-17-35
We quantify the normally unobservable forces that determine the boundary of the firm; that is, which transactions are mediated by ownership control as opposed to contracts or markets. To do so, we examine the shipment decisions of tens of thousands of establishments that produce and distribute a variety of products throughout the goods-producing sector. We examine how a firm's willingness to ship over distance varies with whether the recipient is owned by the firm. Because shipping costs increase with distance for many reasons, a greater volume of internal transactions at any given distance reveals the size of the firm's perceived net cost advantage of internal transactions. We find that the firm boundary is notably wide. Having one more vertically integrated downstream establishment in a location has the same effect on transaction volumes to that location as does a 40 percent reduction in distance between sender and destination. We further characterize how this 'internal advantage' varies with observable attributes of the transaction or product being shipped. Finally, we conduct a calibration of a multi-sector general equilibrium trade model and find that costs associated with transacting across firm boundaries also have discernible economy-wide implications.
View Full
Paper PDF
-
Dutch Disease or Agglomeration? The Local Economic Effects of Natural Resource Booms in Modern America
November 2015
Working Paper Number:
CES-15-41
Do natural resources benefit producer economies, or is there a "Natural Resource Curse," perhaps as Dutch Disease crowds out manufacturing? We combine new data on oil and gas abundance with Census of Manufactures microdata to estimate how oil and gas booms have affected local economies in the United States. Migration does not fully offset labor demand growth, so local wages rise. Notwithstanding, manufacturing is actually pro-cyclical with resource booms, driven by growth in upstream and locally traded sectors. The results highlight the importance of highly local demand for many manufacturers and underscore how natural resource linkages can drive manufacturing growth.
View Full
Paper PDF
-
Input Linkages and the Transmission of Shocks: Firm-Level Evidence from the 2011 Tohoku Earthquake
September 2015
Working Paper Number:
CES-15-28
Using novel firm-level microdata and leveraging a natural experiment, this paper provides causal evidence for the role of trade and multinational firms in the cross-country transmission of shocks. Foreign multinational affiliates in the U.S. exhibit substantial intermediate input linkages with their source country. The scope for these linkages to generate cross-country spillovers in the domestic market depends on the elasticity of substitution with respect to other inputs. Using the 2011 Tohoku earthquake as an exogenous shock, we estimate this elasticity for those firms most reliant on Japanese imported inputs: the U.S. affiliates of Japanese multinationals. These firms suffered large drops in U.S. output in the months following the shock, roughly one-for-one with the drop in imports and consistent with a Leontief relationship between imported and domestic inputs. Structural estimates of the production function for these firms yield disaggregated production elasticities that are similarly low. Our results suggest that global supply chains are sufficiently rigid to play an important role in the cross-country transmission of shocks.
View Full
Paper PDF
-
The Slow Growth of New Plants: Learning about Demand?
March 2012
Working Paper Number:
CES-12-06
It is well known that new businesses are typically much smaller than their established industry competitors, and that this size gap closes slowly. We show that even in commodity-like product markets, these patterns do not reflect productivity gaps, but rather differences in demand-side fundamentals. We document and explore patterns in plants' idiosyncratic demand levels by estimating a dynamic model of plant expansion in the presence of a demand accumulation process (e.g., building a customer base). We find active accumulation driven by plants' past production decisions quantitatively dominates passive demand accumulation, and that within-firm spillovers affect demand levels but not growth.
View Full
Paper PDF
-
Why Do Firms Own Production Chains?
September 2009
Working Paper Number:
CES-09-31
Many firms own links of production chains--i.e., they own both upstream and downstream plants in vertically linked industries. We use broad-based yet detailed data from the economy's goods-producing sectors to investigate the reasons for such vertical ownership. It does not appear that vertical ownership is usually used to facilitate transfers of goods along the production chain, as is often presumed. Shipments from firms' upstream units to their downstream units are surprisingly low, relative to both the firms' total upstream production and their downstream needs. Roughly one-third of upstream plants report no shipments to their firms' downstream units. Half ship less than three percent of their output internally. We do find that manufacturing plants in vertical ownership structures have high measures of 'type' (productivity, size, and capital intensity). These patterns primarily reflect selective sorting of high plant types into large firms; once we account for firm size, vertical structure per se matters much less. We propose an alternative explanation for vertical ownership that is consistent with these results. Namely, that rather than moderating goods transfers down production chains, it instead allows more efficient transfers of intangible inputs (e.g., managerial oversight) within the firm. We document some suggestive evidence of this mechanism.
View Full
Paper PDF
-
The Structure Of Technology, Substitution, And Productivity In The Interstate Natural Gas Transmission Industry Under The NGPA Of 1978
August 1992
Working Paper Number:
CES-92-09
The structure of production in the natural gas transmission industry is estimated using the dual restricted cost function based on panel data for twenty four firms. A standard translog variable cost function with firm fixed effects is augmented with controls for capacity utilization, technical change, and shifting regulatory regimes. During the implementation of the Natural Gas Policy Act (NGPA), 1978-1985, the industry exhibited no significant increase in productivity, largely attributable to the decline in output for the industry. Regulatory efforts to promote voluntary non-contract transmission appear to have enabled some firms to mitigate the overall industry productivity stagnation. The NGPA instituted a complex schedule of partial and gradual decontrol of natural gas prices at the well head. This form of deregulation costs natural gas producers over $100 billion in lost revenues, relative to immediate and full price deregulation. However, the transmission firms benefited by paying $1.5 billion less for natural gas than they would have under total deregulation. The benefits to consumers, totaling $98.7 billion, were unevenly distributed. On average, for the 1978-1985 period, utilities, commercial, and industrial users paid less for their gas than they would have under total decontrol and residential users paid $8.6 billion more. The NGPA and Federal Regulatory Commission oversight practices allow the transmission industry to price discriminate among customers.
View Full
Paper PDF
