Brands in motion: How Frictions Shape Multinational Production

September 2016
Keith Head; Thierry Mayer

Using disaggregated data on car assembly and trade, we estimate a model of multinational production. Decisions of which markets to enter, how much to sell in each, and which assembly locations to select for each market depend on three types of friction. In addition to the trade and multinational production costs emphasized in past work, we incorporate a third friction: regardless of production origin, selling
costs in a market rise with separation from the brand’s headquarters. The estimation transparently recovers all the structural parameters. We then simulate the consequences of controversial trade policy changes: TPP, TTIP, Brexit, and NAFTA abrogation.