Abstract

Multinational firms colocate production and innovation by offshoring them to the same host country or region. In this paper, I examine the determinants of multinational firms’ production and innovation locations. I find complementarities between production and innovation within host countries and regions, exploiting plausibly exogenous variation in tariffs. To evaluate manufacturing reshoring policies, I develop a quantifiable multicountry offshoring location choice model. I allow for rich colocation benefits and cross-country interdependencies and prove supermodularity of the model to solve this otherwise NP-hard problem. I find the effects of manufacturing reshoring policies are nonlinear, contingent upon firm heterogeneity, and they accumulate dynamically.

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