Tariff effects on MNC decisions to engage in intra-firm and arm's-length trade

Susan Feinberg and Michael Keane ()

Canadian Journal of Economics, 2009, vol. 42, issue 3, 900-929

Abstract: Using confidential firm-level data from the Bureau of Economic Analysis (BEA) on activities of U.S. multinational corporations (MNCs) and their Canadian affiliates, we study the dramatic growth of intra-firm and arm's-length U.S.-Canada trade over the 1984-95 period. We find that decisions to engage in intra-firm and arm's-length trade are essentially unrelated to tariff and transport cost reductions over this sample period. Thus, we find that the increase in trade occurred almost entirely on the intensive rather than the extensive margin. This is consistent with case study evidence in Keane and Feinberg (2006), where MNC executives consistently indicate that the modest tariff reductions of the 1984-95 period were not sufficient to justify fixed costs of overhauling international supply chains. Our results have important implications for recent influential models of international trade that rely on sensitivity of intra-firm trade to tariffs at the extensive margin to explain how small tariff declines could have led to the explosion of intra-firm trade since the 1980s. We also find that initial conditions (i.e., 1983 tariffs) are uncorrelated with whether firms engaged in intra-firm or arm's-length trade activity at the start of the sample period. This result is surprising as it implies that firms/industries with a greater propensity to engage in trade were not, in general, successful at lobbying for more favourable tariff treatment.

Date: 2009
References: Add references at CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
https://doi.org/10.1111/j.1540-5982.2009.01532.x (text/html)
access restricted to subscribers

Related works:
Journal Article: Tariff effects on MNC decisions to engage in intra‐firm and arm's‐length trade (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cje:issued:v:42:y:2009:i:3:p:900-929

Ordering information: This journal article can be ordered from
https://www.economic ... ionen/membership.php

Access Statistics for this article

Canadian Journal of Economics is currently edited by Zhiqi Chen

More articles in Canadian Journal of Economics from Canadian Economics Association Canadian Economics Association Prof. Werrner Antweiler, Treasurer UBC Sauder School of Business 2053 Main Mall Vancouver, BC, V6T 1Z2. Contact information at EDIRC.
Bibliographic data for series maintained by Prof. Werner Antweiler ().