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Misfits in the car industry: Offshore assembly decisions at the variety level

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  • Keith Head
  • Thierry Mayer

Abstract

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.

Suggested Citation

  • Keith Head & Thierry Mayer, 2018. "Misfits in the car industry: Offshore assembly decisions at the variety level," Working Papers 2018-22, CEPII research center.
    • Handle: RePEc:cii:cepidt:2018-22
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    References listed on IDEAS

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    Cited by:

    1. Młody Michał & Stępień Beata, 2020. "Principles of reshoring development in luxury goods sector," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 56(2), pages 140-158, June.
    2. Pierre Cotterlaz & Sébastien Jean & Vincent Vicard, 2022. "Multinational Enterprises and the French Trade Deficit," CEPII Policy Brief 2022-38, CEPII research center.
    3. Pamina Koenig & Sebastian Krautheim & Claudius Löhnert & Thierry Verdier & Thierry Verdier, 2021. "Local Global Watchdogs: Trade, Sourcing and the Internationalization of Social Activism," CESifo Working Paper Series 9068, CESifo.
    4. Li, Zheng & Gao, Shan & Song, Shunfeng, 2023. "Labor protection, labor costs, and China's outward foreign direct investment," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 444-459.
    5. Młody Michał & Stępień Beata, 2020. "Principles of reshoring development in luxury goods sector," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 56(2), pages 140-158, June.
    6. Charlotte Emlinger & Sébastien Jean & Vincent Vicard, 2019. "L’étonnante atonie des exportations françaises : retour sur la compétitivité et ses déterminants," CEPII Policy Brief 2019-24, CEPII research center.
    7. Antoine ABI ZEID, 2021. "Untapped export potential in developing countries: evidence from the car industry," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 54, pages 117-144.
    8. Chen, Qifei & Shen, Yanzhi, 2021. "The impacts of offshore and onshore outsourcing on China's upgrading in global value chains: Evidence from its manufacturing and service sectors," Structural Change and Economic Dynamics, Elsevier, vol. 59(C), pages 263-280.

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    More about this item

    Keywords

    FDI; Gravity; Offshoring;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade

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