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Nonroutine tasks in international trade

  • Author(s): Oldenski, Lindsay
  • et al.
Abstract

Chapter 1 shows that standard predictors of the export versus FDI decision hold for manufacturing but not for service industries. I develop an alternative model which decomposes each industry into tasks and uses these tasks to predict the location of production for that industry. Industries requiring direct communication with consumers are more likely to be produced in the destination market. Production of more nonroutine activities is more likely to occur at the multinational's headquarters for export, especially when the destination market has weak contract- enforcing institutions. The task-based approach performs well for both manufacturing and services, has greater explanatory power than alternative models, and is robust to a variety of specifications. Chapter 2 offers an empirical analysis of the impact of adaptation on the boundary of multinational firms. We first develop a ranking of sectors in terms of their routineness by merging ratings of occupations by their intensities in "problem solving" and U.S. employment shares of occupations by sectors. We then demonstrate that, in line with adaptation theories of the firm, the share of intrafirm trade tends to be higher in less routine sectors. This result is robust to inclusion of other variables known to influence the intrafirm import share. In chapter 3, I explore the extent to which horizontal exports and FDI by US multinationals are complements. I use host-country restrictions on capital investment in service industries that were in place in 1993 as an instrument for FDI flows in service industries for 1994 to 2004. I find that increased FDI flows in a given service industry by US multinationals significantly increase US exports in that industry to the country receiving those FDI flows. This holds for exports and FDI of final services as well as for overall FDI flows. I also present evidence that the complementarity between exports and FDI is stronger for service industries than it is for manufacturing by using the existence of bilateral investment treaties at the country level as an instrument and estimating the relationship on separate samples of manufacturing and services.

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