Abstract:
Intra-firm trade in intermediates between U.S. multinational parents
(MNCs) and their Canadian manufacturing affiliates increased
dramatically in the 1984–1995 period (i.e., it roughly doubled). Tariff
and transport cost declines were far too small to explain this
phenomenon. But we show that the advent of improved logistics
management practices, including the ‘just-in-time’ (JIT) production
system, can explain much of the growth of intra-firm trade. JIT lowers
the inventory carrying cost component of intra-firm trade, and, by 1984,
this was more important than tariff and transport costs in many
industries. We combine regression analysis with numerous case studies
to draw our conclusions.
