Measuring network effects on trade: are Japanese affiliates distinctive?

Abstract

This paper examines network effects on trade by comparing the trade patterns of foreign affiliates in the United States with the trade patterns of U.S.-owned firms. The evidence strongly supports the following hypotheses: 1) foreign affiliates behave differently from U.S. firms in their trade patterns; 2) in particular, foreign affiliates display strong home biases in their trade patterns; and 3) among the foreign affiliates, Japanese affiliates demonstrate by far the strongest home bias in their trade patterns. Controlling for income and distance effects, foreign affiliates from Canada, France, Germany, the Netherlands and Switzerland traded on average 17 times more with their respective home countries and those from the United Kingdom traded 30 times more with the United Kingdom, while Japanese affiliates traded a whopping 130 times more with Japan.Network effects, Foreign affiliates, Trade patterns