How Does Multinational Production Affect the Measurement of Competitiveness?

Abstract

This work assembles a unique bilateral dataset on multinational production in the manufacturing sector, in which value added and factor incomes are broken down by location country and by ultimate owner country. Using this dataset, which covers 44 countries over the years 2004-11, we compute measures of production capabilities in which value added is allocated across countries not according to the location of the activity but according to the nationality of the firm or of the factors involved in production (Baldwin and Kimura 1998). These indicators based on the ownership of production are then compared with standard geography-based indicators. This framework is also applied to the analysis of the two modes of supply of foreign markets (exports and FDI) using a common metric based on value added (domestic value added in exports versus value added of foreign affiliates). Overall, the evidence suggests that there are significant differences between geography-based and ownership-based measures, proving that, in an increasingly integrated global economy, ownership matters for the measurement of competitiveness.