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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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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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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.
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Identifying Foreign Suppliers in U.S. Merchandise Import Transactions
April 2015
Working Paper Number:
CES-15-11
The availability of international trade transactions data capturing individual relationships between buyers and suppliers permits the answering of numerous new questions governing the economic activity of traders. In this paper, we explore the reliability of two-sided firm trade transactions data sourced from the United States by comparing the number of foreign suppliers from U.S. merchandise import transaction data to origin-country data. We find that the statistic derived from the origin-country data, on average, tends to be 20 percent lower than using the raw U.S. data. Guided by this finding, we propose and implement a set of methods that are capable of aligning the counts more closely from these two different data sources. Overall, our analysis presents broad support for the use of U.S. merchandise import transactions data to study buyer-supplier relationships in international trade.
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Assimilation and Coverage of the
Foreign-Born Population in Administrative Records
April 2015
Working Paper Number:
carra-2015-02
The U.S. Census Bureau is researching ways to incorporate administrative data in decennial census and survey operations. Critical to this work is an understanding of the coverage of the population by administrative records. Using federal and third party administrative data linked to the American Community Survey (ACS), we evaluate the extent to which administrative records provide data on foreign-born individuals in the ACS and employ multinomial logistic regression techniques to evaluate characteristics of those who are in administrative records relative to those who are not. We find that overall, administrative records provide high coverage of foreign-born individuals in our sample for whom a match can be determined. The odds of being in administrative records are found to be tied to the processes of immigrant assimilation - naturalization, higher English proficiency, educational attainment, and full-time employment are associated with greater odds of being in administrative records. These findings suggest that as immigrants adapt and integrate into U.S. society, they are more likely to be involved in government and commercial processes and programs for which we are including data. We further explore administrative records coverage for the two largest race/ethnic groups in our sample - Hispanic and non-Hispanic single-race Asian foreign born, finding again that characteristics related to assimilation are associated with administrative records coverage for both groups. However, we observe that neighborhood context impacts Hispanics and Asians differently.
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THE MARGINS OF GLOBAL SOURCING: THEORY AND EVIDENCE FROM U.S. FIRMS
December 2014
Working Paper Number:
CES-14-47
This paper studies the extensive and intensive margins of firms' global sourcing decisions. We develop a quantifiable multi-country sourcing model in which heterogeneous firms self-select into importing based on their productivity and country-specific variables. The model delivers a simple closed-form solution for firm profits as a function of the countries from which a firm imports, as well as those countries' characteristics. In contrast to canonical models of exporting in which firm profits are additively separable across exporting markets, we show that global sourcing decisions naturally interact through the firm's cost function. In particular, the marginal change in profits from adding a country to the firm's set of potential sourcing locations depends on the number and characteristics of other countries in the set. Still, under plausible parametric restrictions, selection into importing features complementarity across markets and firms' sourcing strategies follow a hierarchical structure analogous to the one predicted by exporting models. Our quantitative analysis exploits these complementarities to distinguish between a country's potential as a marginal cost-reducing source of inputs and the fixed cost associated with sourcing from this country. Counterfactual exercises suggest that a shock to the potential benefits of sourcing from a country leads to significant and heterogeneous changes in sourcing across both countries and firms.
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Buyer-Seller Relationships in International Trade: Do Your Neighbors Matter?
October 2014
Working Paper Number:
CES-14-44
Using confidential U.S. customs data on trade transactions between U.S. importers and Bangladeshi exporters between 2002 and 2009, and information on the geographic location of Bangladeshi exporters, we show that the presence of neighboring exporters that previously transacted with a U.S. importer is associated with a greater likelihood of matching with the same U.S. importer for the first time. This suggests a role for business networks among trading firms in generating exporter-importer matches. Our research design also allows us to isolate potential gains from neighborhood exporter presence that are partner-specific, from overall gains previously documented in the literature.
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"It's Not You, It's Me": Breakup In U.S.-China Trade Relationships
February 2014
Working Paper Number:
CES-14-08
This paper uses confidential U.S. Customs data on U.S. importers and their Chinese exporters toinvestigate the frictions from changing exporting partners. High costs from switching partners can affect the efficiency of buyer-supplier matches by impeding the movement of importers from high to lower cost exporters. I test the significance of this channel using U.S. import data, which identifies firms on both sides (U.S. and foreign) of an international trade relationship, the location of the foreign supplier, and values and quantities for the universe of U.S. import transactions. Using transactions with China from 2003-2008, I find evidence suggesting that barriers to switching exporters are considerable: 45% of arm's-length importers maintain their partner from one year to the next, and one-third of all switching importers remain in the same city as their original partner. In addition, importers paying the highest prices are the most likely to change their exporting partner. Guided by these empirical regularities, I propose and structurally estimate a dynamic discrete choice model of exporter choice, embedded in a heterogeneous firm model of international trade. In the model, importing firms choose a future partner using information for each choice, but are subject to partner and location-specific costs if they decide to switch their current partner. Structural estimates of switching costs are large, and heterogeneous across industries. For the random sample of 50 industries I use, halving switching costs shrinks the fraction of importers remaining with their partner from 57% to 18%, and this improvement in match efficiency leads to a 12.5% decrease in the U.S.-China Import Price Index.
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THE INFLUENCES OF FOREIGN DIRECT INVESTMENTS, INTRAFIRM TRADING, AND CURRENCY UNDERVALUATION ON U.S. FIRM TRADE DISPUTES
January 2014
Working Paper Number:
CES-14-04
We use the case of a puzzling decline in U.S. firm antidumping (AD) filings to explore how firm-level economic heterogeneity within U.S. industries influences political and regulatory responses to changes in the global economy. Firms exhibit heterogeneity both within and across industries regarding foreign direct investment. We propose that firms making vertical, or resource-seeking, investments abroad will be less likely to file AD petitions. Hence, we argue, the increasing vertical FDI of U.S. firms (particularly in countries with undervalued currencies) makes trade disputes far less likely. We use firm level data to examine the universe of U.S. manufacturing firms and find that AD filers generally conduct no intrafirm trade with filed-against countries. Among U.S. MNCs, the number of AD filings is negatively associated with increases in the level of intrafirm trade for large firms. In the context of currency undervaluation, we confirm the existing finding that undervaluation is associated with more AD filings. We also find, however, that high levels of related-party imports from countries with undervalued currencies significantly decrease the numbers of AD filings. Our study highlights the centrality of global production networks in understanding political mobilization over international economic policy. [192]
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Evolving Property Rights and Shifting Organizational Forms: Evidence From Joint-Venture Buyouts Following China's WTO Accession
March 2013
Working Paper Number:
CES-13-05
China's WTO accession offers a rare opportunity to observe multinationals' response to changes in property rights in a developing country. WTO accession reduced incentives for joint ventures while reducing constraints on wholly owned foreign subsidiaries. Concomitant with these changes was a more liberal investment environment for indigenous investors. An adaptation of Feenstra and Hanson's (2005) property rights model suggests that higher the productivity and value added of the joint venture, but the lower its domestic sales share, the more likely the venture is to be become wholly foreign owned following liberalization. Theory also suggests that an enterprise with lower productivity but higher value added and domestic sales will be more likely to switch from a joint venture to wholly domestic owned. Using newly created enterprise-level panel data on equity joint ventures and changes in registration type following China's WTO accession, we find evidence consistent with the property rights theory. More highly productive firms with higher value added and lower domestic sales shares are more likely to become wholly foreign owned, while less productive firms focused on the Chinese market are more likely to become wholly domestic owned rather than remain joint ventures. In addition to highlighting the importance of incomplete contracts and property rights in the international organization of production, these results support the view that external commitment to liberalization through WTO accession influences multinational and indigenous firms' behavior.
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