Factor Prices and Factor Substitution in U.S. Firms' Manufacturing Affiliates Abroad
NBER Working Paper No. 10442
Using confidential individual firm data from the Bureau of Economic Analysis survey of U.S. firms' manufacturing operations abroad, we investigate the determinants of capital intensity in affiliate operations. Host country labor cost, the scale of host country production, and the capital intensity of the parent firm's production in the United States, are all significant influences. The parent's capital intensity is the strongest and most consistent determinant of affiliate capital intensity. Affiliates that export are more sensitive to these factors in their choice of factor proportions than affiliates that sell only in their host countries.
Published: Maria Borga & Robert E. Lipsey, 2009. "Factor Prices, Factor Substitution and Exporting in US Manufacturing Affiliates Abroad," The World Economy, Blackwell Publishing, vol. 32(1), pages 30-48, 01.
This paper was revised on July 30, 2007