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DECTI Trade Seminar: U.S. Multinationals and Preferential Market Access

Sponsor: Development Economics and Chief Economist (DEC)


Abstract: This paper examines the relationship between U.S. multinational affiliates and the structure of preferential tariff access to the United States. Combining firm level panel data on U.S. foreign affliate activity from the U.S. Bureau of Economic Analysis (BEA) with detailed measures of implemented U.S. trade preferences from the U.S. International Trade Commission (USITC), we create a three-way panel spanning 81 industries, 184 countries, and ten years (1997-2006). Consistent with existing theory, we find that off-shoring multinational activity and preferential market access are positively and consistently correlated, both in the pooled sample and within countries, industries, and years. Using instrumental variables to account for the endogeneity of export platform foreign investment, we find that each $1 billion in U.S. foreign affiliate exports to the U.S. from a particular industry and country is associated with roughly a 5 to 6 percentage point increase in the rate of preferential duty free access. Restricting attention to Generalized System of Preferences (GSP) preferences, the dollar-for-dollar influence of multinational affiliate sales on preferential market access declines by roughly a third, suggesting that U.S. trade preferences for developing countries may be less sensitive to multinationals' presence or political influence.

For Information: Yasmin D Souza

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