Trade orientation and productivity gains from international production: A study of overseas operations of US multinationals

Abstract

The effect of the trade policy regime of the host country on its productivity gains from international production is an issue of obvious policy relevance and analytical interest but one on which there has been a dearth of empirical research. This paper aims to fill this gap through an analysis of a cross-section of data on overseas production of US manufacturing multinationals in 44 countries over the period 1983-1992. The findings provide strong support for the proposition that, other things being equal, productivity gains from international production tend to be greater under a more open trade policy regime compared to a restrictive regime. There is also evidence of a significant negative effect of a stringent domestic tax regime on efficiency gains from international production.