Trends in Intra Firm Trade of USA
Intra Firm Trade
Intra-firm trade consist of trade between parent companies of a compiling country with their affiliates abroad and trade of affiliates under foreign control in this compiling country with their foreign parent group.
Intra Industry Trade
Different types of trade are captured in measurements of intra-industry trade:
a) Trade in similar products (“horizontal trade”) with differentiated varieties (e.g. cars of a similar class and price range).
b) Trade in “vertically differentiated” products distinguished by quality and price (e.g. exports of high-quality clothing and imports of lower-quality clothing).
From GLOBALISATION AND INTRA-FIRM TRADE: AN EMPIRICAL NOTE
Products which are traded internationally, but which stay within the ambit of a multinational enterprise (MNE), represent a significant portion of foreign trade for several OECD countries. This type of trade is called intra-firm trade as opposed to international trade among unrelated parties, also called arm’s length trade. Intra-firm trade is an important part of the process of globalisation, by which is meant the increasing interdependence of markets and production in different countries through trade in goods and services, cross-border flows of capital, and exchanges of technology.
The phenomenon of intra-firm trade is of interest to trade policy makers, as well as to competition and tax authorities. The use of transfer pricing in intra-firm trade may introduce an element of uncertainty into the value of a fairly large part of international trade and into customs valuation needed for the application of tariffs or similar measures. Competition and tax issues may also arise from intra-firm trade to the extent that the latter may facilitate the dissimulation of real transaction prices between the parent company and its affiliates.
A surge in foreign direct investment (FDI) during the 1980s’ has been cited as evidence in favour of globalisation; it is argued that MNEs have played a central role in globalisation by extending their corporate networks beyond national boundaries through the establishment of foreign branches and subsidiaries. It is often assumed that intra-firm trade reflects these foreign production activities by MNEs, as they trans- fer their factors of production from one country to another.
Little attention has been paid so far to the phenomenon of intra-firm trade. The literature on the subject is still relatively limited and recent. This is partly because most international trade statistics do not distinguish between intra-firm trade and arm’s length trade.
From GLOBALISATION AND INTRA-FIRM TRADE: AN EMPIRICAL NOTE
In considering the interrelationship between globalisation and international trade, it is conceptually useful to distinguish between four types of international trade:
(A) intra industry, intra-firm trade;
(B) intra-industry, arm’s-length trade;
(C) inter-industry, intra firm trade;
(D) inter-industry, arm’s-length trade.
Intra-industry trade is defined as the mutual exchange of similar goods within the same product category (Grubel and Lloyd, 1975, and Greenaway and Milner, 1986).
Intra-industry trade is generally a function of product differentiation and may or may not involve intra-firm trade. If motor vehicles produced in France are exported to the United States and U.S.-built motor vehicles are exported to France, the two countries are said to be involved in intra-industry trade even though such trade is not necessarily intra-firm trade. Intra-industry trade can be readily calculated for any given product category, as only the traditional bilateral trade statistics for that product category are needed.
Intra firm trade is harder to quantify, since knowledge of the relationship between the firms involved in the transactions is necessary. Data on intra-firm trade are available only. through firm surveys, involving the preparation of questionnaires by national authorities.
Most trade in manufactured goods among OECD countries is of the intra-industry type. Intra-industry trade is particularly important within Europe, and to a lesser extent, in North America, accounting for roughly 60 to 70 per cent of total trade in manufacture. This trade generally concerns differentiated products exchanged between countries that are similar in terms of per capita income and relative factor endowments. It has also been argued that economies of scale play an important role in explaining the industry pattern of intra-industry trade.
On the other hand, trade between developed and developing countries (“North-South”) is mostly of the inter-industry type, reflecting large differences in relative factor endowments between the two groups of countries. Inter-industry trade among unrelated parties (type D) – e.g. international exchange of cotton cloth produced by northern manufacturers for wine produced by southern farmers .- is the type of trade which international trade textbooks traditionally deal with.
Trade in manufactured goods between developed countries is predominantly of the intra-industry type and often takes the form of intra-firm trade. An important example of intra-industry, intra-firm trade (Type A) is United States-Canada-Mexico automobile trade. Intra-firm trade is also the dominant pattern of U.S. exports to Canada and Europe in the case of non-electrical machinery and chemicals. Another example is trade in manufactured goods between Pacific Asian economies. These economies have seen a rapid increase in intra-industry trade as a proportion of their total trade over the last decade. Such increase in intra-industry trade in Pacific Asian economies can be primarily attributed to the globalisation of corporate activities by U.S. and Japanese firms and, more recently, by other Asian firms. This involves assembly-line production based on imported parts and components in different countries in East and South East Asia (Fukasaku, 1992; Gross, 1986).
From An Overview of U.S. Intrafirm-trade Data Sources
There are large differences in BEA data and Census data particularly for Imports. There are some measurement issues. Import data from Mexico and China show big errors.
From An Overview of U.S. Intrafirm-trade Data Sources
From An Overview of U.S. Intrafirm-trade Data Sources
Data sources of Intra Firm Trade
- BEA (Intra Firm Trade Data)
- US Census Bureau (Related party trade data)
From Intrafirm Trade and Vertical Fragmentation in U.S. Multinational Corporations
First, we show that, although intra-MNC trade represents an important fraction of aggregate U.S. exports and imports, the median manufacturing foreign affiliate ships nothing to — and receives nothing from — its parent in the United States. Intra-MNC trade is concentrated in a small group of large affiliates and large corporations: The largest five percent of affiliates accounts for around half of the total trade to and from the parent, while the largest five percent of corporations accounts for almost two thirds of total intra- MNC trade. This skewness is also observed within the corporation: Intra-MNC trade tends to be concentrated in a small number of an MNC’s largest foreign affiliates.
The lack of intra-MNC cross-border trade that we find for foreign affiliates of U.S. multinationals is more surprising than the similar finding in Atalay et al. (2014) for intrafirm trade within the United States. Factor price differences — the theoretical motivation for vertical fragmentation and the intrafirm trade that accompanies it — are much larger across countries than across U.S. cities. In this regard, Brainard (1993) first documented the weak relationship between factor endowments and intra-MNC trade across borders.
The skewness of intra-MNC trade towards large affiliates and corporations in our first finding is reminiscent of the skewness in the distributions of other international activities. Manufacturing exports are concentrated in large firms (Bernard and Jensen, 1995), and even larger firms own foreign affiliates (Helpman et al., 2004). These patterns are consistent with theories of the firm that are based on economies of scale in production. In Grossman et al. (2006), for example, the production of inputs for the entire multinational corporation is concentrated into a few large affiliates, which exploit the strong economies of scale in production. Affiliates created to supply a foreign market — as an alternative to exporting, in order to avoid transportation costs — are relatively small. The model predicts that a small number of large affiliates ship goods within the corporation, while numerous smaller affiliates serve local markets. The concentration of intra-MNC trade in the largest firms is also consistent with the contract theory of the multinational firm proposed by Antras and Helpman (2004): In their framework with heterogeneous firms, only the largest firms choose to integrate offshore activities.
Our second set of facts relates intra-MNC trade to the upstream and downstream links between the industries of the parent and affiliate, as defined by the U.S. input-output table. As previously shown in Alfaro and Charlton (2009), we find that multinational corporations own affiliates in industries that are vertically linked to the parent’s industry. The input-output coefficient between the affiliate’s and the parent’s industries of operation, however, is not related to the existence and the magnitude of the trade in goods between the two. These findings are similar to those in Atalay et al. (2014), who study multi-establishment firms within the United States: The ownership of vertically linked affiliates is not related to the transfer of goods within the boundaries of the firm.
Key Sources of Research:
GLOBALISATION AND INTRA-FIRM TRADE: AN EMPIRICAL NOTE
Marcos Bonturi and Kiichiro Fukasaku
1993
U.S. Direct Investment Abroad: Trends and Current Issues
James K. Jackson
Specialist in International Trade and Finance
June 29, 2017
Foreign Direct Investment in the United States (FDIUS): Final Results from the 2012 Benchmark Survey
https://www.bea.gov/international/fdius2012_final.htm
U.S. Direct Investment Abroad (USDIA): Revised 2009 Benchmark Data
https://www.bea.gov/international/usdia2009r.htm
U.S. Intrafirm Trade in Goods
By William J. Zeile
1997
Global Production: Firms, Contracts, and Trade Structure
Pol Antràs
Harvard University
June, 2015
Click to access global_production_slides.pdf
Trade in Goods Within Multinational Companies:
Survey-Based Data and Findings for the United States of America
William J. Zeile
U.S. Bureau of Economic Analysis
Washington, DC 20230
2003
Click to access IFT_OECD_Zeile.pdf
An Overview of U.S. Intrafirm-trade Data Sources
Kim J. Ruhl
New York University Stern School of Business
May 2013
Click to access Ruhl_USIntrafirm-tradeData_May2013.pdf
How Well is U.S. Intrafirm Trade Measured?
By KIM J. RUHL
20015
Click to access How_Well_March_2015.pdf
An Overview of U.S. Intrafirm-trade Data Sources
Kim J. Ruhl
New York University Stern School of Business
May 2013
http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.343.7532&rep=rep1&type=pdf
THE DETERMINANTS OF INTRAFIRM TRADE
Gregory Corcos
Delphine M. Irac
Giordano Miony
Thierry Verdier
First draft: January 26, 2008. This draft : December 9, 2010.
MULTINATIONAL FIRMS AND THE STRUCTURE OF INTERNATIONAL TRADE
Pol Antràs
Stephen R.Yeaple
Working Paper 18775
February 2013
INTRA-FIRM TRADE AND PRODUCT CONTRACTIBILITY (LONG VERSION)
Andrew B. Bernard
J. Bradford Jensen
Stephen J. Redding
Peter K. Schott
April 2010
FIRMS, CONTRACTS, AND TRADE STRUCTURE
POL ANTRAS
On Intra-firm Trade and Multinationals: Offshoring and Foreign Outsourcing in Manufacturing
https://link.springer.com/chapter/10.1057%2F9780230522954_2
INTRAFIRM TRADE AND VERTICAL FRAGMENTATION IN U.S. MULTINATIONAL
CORPORATIONS
Natalia Ramondo
Veronica Rappoport
Kim J. Ruhl
August 2015
INTRA-FIRM TRADE: PATTERNS, DETERMINANTS AND POLICY IMPLICATIONS
Rainer Lanz,
Sébastien Miroudot,
OECD
Click to access 5kg9p39lrwnn.pdf
Intrafirm Trade and Product Contractibility
By Andrew B. Bernard, J. Bradford Jensen, Stephen J. Redding,
and Peter K. Schott
Click to access Intrafirm_trade_and_product_compatibility_(lsero).pdf
Vertical Specialization in Multinational Firms
Gordon H. Hanson
Raymond J. Mataloni, Jr.
Matthew J. Slaughter
Initial Draft: September 2002
GLOBAL VALUE CHAINS SURVEYING DRIVERS AND MEASURES
João Amador and Sónia Cabral
2014
https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1739.en.pdf?13f6d86f40a3c60325f27cbc08a18742
EU-US ECONOMIC LINKAGES:
THE ROLE OF MULTINATIONALS AND INTRA-FIRM TRADE
C. Lakatos and T. Fukui
2013
Click to access tradoc_151922.%202_November%202013.pdf
THREE ESSAYS ON INTRAFIRM TRADE
Sooyoung Lee
2015
http://scholar.colorado.edu/cgi/viewcontent.cgi?article=1061&context=econ_gradetds
On Intra-Firm Trade and Multinationals: Foreign Outsourcing and Offshoring in Manufacturing
Ashok Deo Bardhan
Dwight Jaffee
2004
Click to access d993275ddc9ba520060c9022fb84435a4d6a.pdf
International Fragmentation of Production and the Intrafirm Trade
of U.S. Multinational Companies
Maria Borga and William J. Zeile
January 22, 2004
Click to access intrafirmtradejanuary04.pdf
Globalization and trade flows: what you see is not what you get!
Andreas Maurer and Christophe Degain
Click to access ersd201012_e.pdf
How US corporations structure their international production chains
Natalia Ramondo, Veronica Rappoport, Kim Ruhl
07 October 2015
http://voxeu.org/article/international-production-networks-and-intra-firm-trade-new-evidence
WHY DO FIRMS OWN PRODUCTION CHAINS?
Enghin Atalay
Ali Hortacsu
Chad Syverson
April 2012
Vertical Integration and Input Flows
Enghin Atalay
Ali Hortaçsu
Chad Syverson
August, 2013
Click to access verticalownership.pdf
Click to access viplantevidence.pdf
Outsourcing versus Vertical Integration: A Dynamic Model of Industry Equilibrium.
Román Fossati
March 2014
Click to access 1March2014-RomanFossati.pdf
Production Networks, Geography and Firm Performance
Andrew B. Bernardy
Andreas Moxnesz
Yukiko U. Saitox
This Version: May 2014 –
Click to access MOXNES%20-%20j_network_ERWIT4.pdf
Vertical Integration and Firm Boundaries: The Evidence
FRANCINE LAFONTAINE AND MARGARET SLADE
2007
Click to access Lafontaine_Slade%20-%20Vertical%20integration%20and%20firm%20boundaries.pdf
Foreign affiliates with and without intra-firm trade:
Evidence from sub-Saharan Africa
Sotiris Blanas
Adnan Seric
Outsourcing, Vertical Integration, and Cost Reduction
Simon Loertscher†
Michael H. Riordan‡
September 8, 2014
Click to access Loertscher_Outsourcing.pdf
VERTICAL PRODUCTION NETWORKS IN MULTINATIONAL FIRMS
Gordon H. Hanson
Raymond J. Mataloni, Jr.
Matthew J. Slaughter
May 2003
Network structure of production
Enghin Atalaya, Ali Hortaçsua,1, James Robertsb, and Chad Syversonc
Edited by Lars Peter Hansen, University of Chicago, Chicago, IL, and approved February 2, 2011 (received for review October 15, 2010)
Click to access pnas.201015564.pdf
Cross-border Vertical Integration and Intra-firm Trade:
New evidence from Korean and Japanese firm-level data
Hyunbae CHUN
Jung HUR
Young Gak KIM
Hyeog Ug KWON
Click to access chun_aep_2017.pdf
Offshoring in the Global Economy
Lecture 1: Microeconomic Structure
Lecture 2: Macroeconomic Implications
Robert C. Feenstra
September 2008
http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.294.715&rep=rep1&type=pdf
THE NETWORK STRUCTURE OF INTERNATIONAL TRADE
Thomas Chaney
January 2011
Viewpoints which Matter 