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Multinational Production and Innovation in Tandem

Author

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  • Jin Liu

Abstract

Multinational firms colocate production and innovation by offshoring them to the same host country or region. In this paper, I examine the determinants of multinational firms’ production and innovation locations. Exploiting plausibly exogenous variations in tariffs, I find complementarities between production and innovation within host countries and regions. To evaluate manufacturing reshoring policies, I develop a quantitative multicountry offshoring location choice model. I allow for rich colocation benefits and cross-country interdependencies and prove supermodularity of the model to solve this otherwise NP-hard problem. I find the effects of manufacturing reshoring policies are nonlinear, contingent upon firm heterogeneity, and they accumulate dynamically.

Suggested Citation

  • Jin Liu, 2024. "Multinational Production and Innovation in Tandem," Working Papers 24-64, Center for Economic Studies, U.S. Census Bureau.
    • Handle: RePEc:cen:wpaper:24-64
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    File URL: https://www2.census.gov/library/working-papers/2024/adrm/ces/CES-WP-24-64.pdf
    File Function: First version, 2024
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    More about this item

    Keywords

    multinational firms; colocation of production and innovation; offshoring;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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