INTRA-FIRM TRADE AND THE DEVELOPING COUNTRIES By the same author PEASANT AGRICULTURE, GOVERNMENT AND ECONOMIC GROWTH IN NIGERIA INTERNATIONAL TRADE AND ECONOMIC DEVELOPMENT AGRICULTURAL PLANNING IN EAST AFRICA (editor) A WORLD DIVIDED, THE LESS-DEVELOPED COUNTRIES IN THE INTERNATIONAL ECONOMY (editor) INTERNATIONAL ECONOMIC DISORDER: ESSAYS IN NORTH-SOUTH RELATIONS INTRA-FIRM TRADE AND THE DEVELOPING COUNTRIES Gerald K. Helleiner M MACMILLAN PRESS © Gerald K. Helleiner 1981 Softcover reprint of the hardcover 1st edition 1981 978-0-333-27739-3 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright Act 1956 (as amended). Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. First edition 1981 Reprinted 1986 Published by THE MACMILLAN PRESS LTD Houndmills, Basingstoke, Hampshire RG21 2XS and London Companies and representatives throughout the world British Library Cataloguing in Publication Data Helleiner, Gerald Karl Intra-firm trade and the developing countries I. International business enterprises - Addresses, essays, lectures I. Title 382 HD2755.5 ISBN 978-1-349-05080-2 ISBN 978-1-349-05078-9 (eBook) DOI 10.1007/978-1-349-05078-9 Contents List of Tables vi Preface vii Acknowledgments x l The Importance of Intra-Firm Trade l 2 Intra-Firm Trade and the Developing Countries: the Data 14 3 US Intra-Firm Imports: Further Analysis of Related- Party Trade 44 4 Intra-Firm Trade, Structural Adjustment and Trade Policy 64 5 Transnational Corporations, Intra-Firm Trade and the New Political Economy of US Trade Policy 73 6 Further Directions for Research on Intra-Firm Trade 90 Notes 95 References 99 Index 107 v List of Tables 2.1 Majority-Owned Affiliate Sales to the United States as Percentage of Total US Merchandise Imports by Area of Origin, 1966-75 19 2.2 US Related-Party Imports as Percentage of Total Imports, by Product Class and Origin, 1977 28 2.3 US Related-Party Imports as Percentage of Total Imports, by Category, from Third World and OECD Sources, 1977 30 2.4 Estimated Composition of US Related-Party Imports, by US and non-US Parent Firms, 1974 33 2.5 US Imports under Tariff Items 807·00 and 806·30, 1966-78 (US$ millions) 36 2.6 US Imports under Item 807·00 from Specified Less Developed Countries, by Schedule Total, 1976 (US$ thousands) 38 3.1 US Imports of Primary Commodities from Related Parties in Less-Developed and Other Countries, 1975 50 3.2 US Related-Party Imports as Percentage of Total Imports, by SITC Category and Area of Origin, 1977 57 3.3 Correlation Matrix for Independent Variables in Regression Equations 60 3.4 Determinants of US Related-Party Imports as a Percentage of US Imports, by Industry: Regression Results 61 4.1 US Related-Party Imports as a Percentage of Total Imports of Selected Manufactured Products from Selected Newly Industrialising Countries, 1977 70 5.1 Intra-Firm Trade and the Structure of US Protection 85 vi Preface During the course of the last several years I have written a series of papers on the role of transnational corporations in developing country trade. My original intention was to incorporate them all into one book which would span a rather wide area, including such issues as technology trade, employ ment and income distributional effects, and suggestions for developing country policies. One part of my research in this general area seemed so important and so self-contained, however, that I have finally decided to focus here on this one alone. Intra-firm trade is so understudied and so little in corporated in most conventional discussions of international trade that there seemed a special responsibility to try to gather together what information there was and to put it in one place. I dare to hope that by so doing I may stimulate others to launch badly needed research in this field; at least, I hope to succeed in making it a little easier for them. Research on intra-firm trade is required everywhere and not just with reference to developing country trade; but it was with the problems of developing countries that I began, and it is primarily with them that I have remained. Let others develop the implications of the pheno menon for the industrialised world. I am most grateful to the original publishers of the papers in question for allowing me to use the material again in this book. The original papers and their locations are listed on page ix. I am also most grateful to all of those who have offered comments and suggestions on earlier drafts of these papers. These include, at various times and places, Max Corden, John Dunning, Rita Cruise O'Brien, Carlos Diaz-Aiejandro, Reginald Green, Charles Kindleberger, Lawrence Krause, vii viii PREFACE Paul Krugman, Sanjaya Lall, Stephen Magee, Alfred Maizels, John Martin, Robin Murray, James Riedel, Hans Singer, and Paul Streeten. Other participants in conferences and seminars at which these papers were presented have also helped me to improve their contents, notably those at the Institute of Development Studies, Sussex, conferences on 'New Approaches Toward Trade' in September 1975, and on 'Intra firm Transactions and their Impact on Trade and Development' (co-sponsored by the United Nations Conference on Trade and Development) in November 1977; at the twenty-fifth anniversary conference of the Institute of Social Studies, The Hague, December 1977; at the conference on 'Intra-industry Trade' at the Institut fiir Weltwirtschaft, Kiel, in December 1978; and seminars at the Science Policy Research Unit, University of Sussex; Queen Elizabeth House, Oxford; the Overseas Development Council, Washington; and Williams College, Mass. I am the beneficiary not only of the suggestions of those who can be identified by name but also of those of anonymous reviewers and editors of the journals in which the papers first appeared. I should like to single out for special thanks Real Lavergne who provided invaluable re search assistance for Chapters 2 and 3, and is a co-author of one of the papers on which this book draws. His own independent research promises to throw important further light on intra-firm trading practices. For computational assis tance with the first part of Chapter 3, I am also grateful to Allan Gregory, David Tomczak, and John Sculler, and for assistance with Chapter 5 to J. Peter Jarrett. The material presented in this volume has all been published elsewhere but not exactly in the form in which it appears here. While I have made little attempt to alter the original content by updating statistics, adding further references, and the like, I have substantially edited and reordered it all in order to reduce the degree of repetition which would otherwise have appeared, to remove weaker or extraneous material. and to improve the flow from one section to another. Support for the research which underlies this book has been PREFACE IX offered by the Canada Council, the International Development Research Centre (Ottawa), and most recently, by the new Social Sciences and Humanities Research Council of Canada through its Leave Fellowship programme. Continuing sup port, including the sabbatical leave which permitted the book's completion, has also been provided from my home base, the University of Toronto. The Institute of Development Studies, Sussex (in the person of Richard Jolly, its Director) kindly provided me with a Visiting Fellowship in the summer of 1975, during which Chapter 5 was originally drafted. During the first half of 1979 I was also kindly offered an office and supporting services at Queen Elizabeth House, Oxford (by its Warden, Keith Griffin), and the Graduate Institute of International Studies, University of Geneva (through the assistance of Henryk Kierzkowski). I am most grateful to all of these for their invaluable assistance. Despite my heavy debts to so many institutions and people, the responsibility for the contents of this volume rest ex clusively upon my own shoulders. I hope that some of those who have assisted in my enterprise will nevertheless take some pleasure in the final product. Toronto, August 1979 G.K.H.