Firm Location Within and Across Borders
Paper Session
Sunday, Jan. 7, 2024 10:15 AM - 12:15 PM (CST)
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Chairs:
Fabian Eckert, University of California-San Diego - Xian Jiang, University of California-Davis
Efficiency Gains from Information and Communication Technology: A Spatial Analysis of Firm Geographic Expansion
Abstract
This paper studies a novel source of efficiency gains from information and communication technology (ICT): ICT widens firms’ geographic span of control by reducing their internal communication costs. Using confidential US Census data, I document that firms with more advanced technology have both higher within-firm communication and larger geographic coverage. Using a quantitative spatial equilibrium model in which firms endogenously adopt ICT, choose multiple production locations, and trade domestically, I illustrate that multi-unit production is crucial in shaping the geographic distribution of efficiency gains from ICT improvement. I validate the model by exploiting natural experimental variation from the Internet privatization of the early 1990s. I estimate that privatization led to an 8.5% increase in the number of establishments per firm. Accounting for the effects of ICT on within-firm communication and establishment location, the model quantifies that privatization led to an overall efficiency gain of 1.3%. Finally, due to spillovers through multi-unit firms, the model shows that coordinated policies across locations have larger effects on local efficiency than uncoordinated policies.Multinational Production and Corporate Labor Share
Abstract
This study examines how multinational enterprises (MNEs) affect labor share in their home countries, using the 2011 Thailand Floods as a natural experiment. The disaster disrupted Japanese MNEs, slightly reducing labor demand and significantly lowering capital demand in Japan. A general equilibrium model with offshore inputs and an extended hat algebra solution method are introduced. The elasticity of substitution between domestic labor and offshore inputs is estimated using a two-stage least squares regression, with an instrumental variable from the flood’s impact. Results indicate that higher foreign productivity boosts capital demand over labor in Japan, reducing corporate labor share by 1.4%.Differences in Product Availability Across Countries: Determinants and Welfare Consequences
Abstract
There are significant differences in the set of products multinational firms sell in distinct countries. These differences may be driven by variation in consumer tastes or supply costs and may be magnified by cannibalization forces that push firms to reduce the set of products available in each market. In this paper, we use data on the global car industry with information by firm, country, and car model on production, sales, and prices. We use this data to estimate a quantitative model in which car manufacturers decide where to produce and sell the models in their portfolio. Cannibalization forces imply our model exhibits substitutabilities in the firm’s decision to sell different models in the same destination market; transport costs increasing in distance imply our model displays complementarities in the firm decision to produce and sell the same model in geographically close markets. We introduce a new algorithm to solve high-dimensional combinatorial discrete-choice problems that exhibit complementarities and substitutabilities across choices. Using this model, we determine the role demand and supply factors play in determining the observed differences in the set of products each firm sells in each country. We also study the effects of country-specific consumption or production subsidies on the global production location, products offered in each market, and prices. Our counterfactuals highlight the importance of taking interdependencies into account and show that, e.g., local consumption subsidies lead to changes in foreign outcomes through the firms' endogenous reallocation of production.JEL Classifications
- F2 - International Factor Movements and International Business
- R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location