International Production Relocation and Exports of Services

This paper explores the relationship between the relocation of international production and exports of services from the United States using a number of different panel data estimators for six different categories of services. A conventional export demand relationship is augmented by three different measures of the extent of international production relocation by US-based parent companies in service and non-service industries. Our results reveal considerable heterogeneity in the relationship between trade and production relocation across different categories of services and across the sector in which production relocation takes place. We find a significant positive relationship between exports and international production relocation in the majority of non-service sectors, but a significant negative relationship with relocation in service sectors. Intra-firm exports of affiliate services is the only category of trade raised by additional outward investment in all sectors.