| Registro completo |
| Provedor de dados: |
AgEcon
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| País: |
United States
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| Título: |
Arm's-Length Transactions as a Source of Incomplete Cross-Border Transmission: the Case of Autos
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| Autores: |
Hellerstein, Rebecca
Villas-Boas, Sofia Berto
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| Data: |
2008-02-28
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| Ano: |
2006
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| Palavras-chave: |
Cross-border transmission: Multinationals
Arm's-length transactions
Real exchange rates
Exchange-rate pass-through
Vertical contracts
Autos
International Relations/Trade
F14
F3
F4
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| Resumo: |
A growing share of international trade occurs through intra-firm transactions, transactions between domestic and foreign subsidiaries of a multinational firm. The difficulties associated with writing and enforcing a vertical contract compound when a product must cross a national border, and may explain the high rate of multinational trade across such borders. We show that this common crossborder organization of the firm may have implications for the well-documented incomplete transmission of shocks across such borders. We present new evidence of a positive relationship between an industry's share of multinational trade and its rate of exchange-rate pass-through to prices. We then develop a structural econometric model with both manufacturers and retailers to quantify how firms' organization of their activities across national borders affects their pass-through of a foreign cost shock. We apply the model to data from the auto market. Counterfactual experiments show why cross-border transmission may be much higher for a multinational than for an arm's-length transaction. In the structural model, firms' pass-through of foreign cost shocks is on average 29 percentage points lower in arm's-length than in multinational transactions, as the higher markups from a double optimization along the distribution chain create more opportunity for markup adjustment following a shock. As arm's-length transactions account for about 60 percent of U.S. imports, this difference may explain roughly 20 percent of the incomplete transmission of foreign-cost shocks to the U.S. in the aggregate.
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| Tipo: |
Working or Discussion Paper
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| Idioma: |
Inglês
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| Identificador: |
28704
http://purl.umn.edu/7196
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| Relação: |
University of California, Berkeley>Department of Agricultural and Resource Economics>CUDARE Working Papers
CUDARE Working Paper
1016
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| Formato: |
61
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