The Boundaries of the Multinational Firm:An Empirical Analysis

Using data on U.S. intra-firm and arm’s-length imports for 5,423 products and 210 countries, we examine the determinants of the share of U.S. imports that are intra-firm. Three determinants of this share have been proposed: (1) Antràs (2003) focuses on the share of inputs provided by the headquarter firm. We provide added confirmation and further strengthen the empirical findings in Antràs (2003) and Yeaple (2006). (2) In a model featuring heterogeneous productivities, Antràs and Helpman (2004) focus on the interaction between the firm’s productivity level and the headquarter’s input share. We find very strong support for this determinant. (3) Antràs and Helpman (2006) add to this the possibility of partially incomplete contracting. We find that consistent with the novel prediction of their model, improved contracting of the supplier’s inputs can increase the share of U.S. imports that are intra-firm. In short, the data bear out the primary predictions of this class of models about the share of U.S. imports that is intra-firm trade.