Misfits in the Car Industry: Offshore Assembly Decisions at the Variety Level
This paper estimates the role of country-variety comparative advantage in the decision to offshore assembly of more than 2000 models of 197 car brands headquartered in 23 countries. While offshoring in the car industry has risen from 2000 to 2016, the top five offshoring brands account for half the car assembly relocated to low-wage countries. We show that the decision to offshore a particular car model depends on two types of cost (dis)advantage of the home country relative to foreign locations. The first type, the assembly costs common to all models, is estimated via a structural triadic gravity equation. The second effect, model-level comparative advantage, is an interaction between proxies for the model's skill and capital intensity and headquarter country's abundance in these factors.
An earlier version of this paper was prepared within the “Value Added in Motion (VAM)” project funded by the Enel Foundation. We thank an anonymous referee, participants at the 2018 TRIO Conference and seminars at LSE, Milan, National Bank of Belgium, Banque de France, and CEPII for their comments and wish to specifically acknowledge helpful suggestions from Robert Owen, Giorgio Barba Navaretti, Kerem Cosar, Peter Morrow, Peter Neary, and Gianmarco Ottaviano. This paper was written partly while Keith Head was a visitor at the Centre for Economic Performance at LSE. This research has received funding from the European Research Council (ERC) under the Grant Agreement No. 313522. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Keith Head & Thierry Mayer, 2019. "Misfits in the car industry: Offshore assembly decisions at the variety level," Journal of the Japanese and International Economies, . citation courtesy of
Misfits in the Car Industry: Offshore Assembly Decisions at the Variety Level, Keith Head, Thierry Mayer. in Globalization and Welfare Impacts of International Trade, Fukuda, Hoshi, and Kimura. 2020