Conferences at Department of Economics, University of Toronto, RCEF 2012: Cities, Open Economies, and Public Policy

Font Size:  Small  Medium  Large

Would You Buy a Honda Made in the U.S.? The Impact of Production Location on Manufacturing Quality

Nicola Lacetera, Justin Sydnor

Last modified: 2012-07-12


Are location-specific factors—such as the education and attitude of the local workforce, supplier networks, institutional infrastructure, and local “culture”—important for understanding persistent heterogeneities among firms? We address this question in the context of the automobile industry. Using a unique data set of over 565,000 used-car transactions at wholesale auctions, we test whether the long-run value and quality of otherwise identical cars depends on the country of assembly. We exploit the natural experiment provided by the establishment of assembly plants in the U.S. by Japanese auto manufacturers, and the fact that some of the most popular Japanese car models are assembled both in Japan and the U.S. We find evidence that the Japan-assembled cars on average sell for more than those built in the U.S., but the estimated difference is only $62. The average differences are driven almost entirely by older-model Toyotas, for which we find a more meaningful difference between the Japanese and U.S. built cars. For Hondas and more recent models of Toyotas, the Japan-built cars are no more valuable than those built in the U.S. These results suggest that Japanese automakers have been successful, though perhaps with some lag, at transferring their high-quality practices to their U.S. transplants. Our findings also suggest that there is not an inherent limitation to the U.S. manufacturing environment that prevents the production of high-quality cars in America.

Full Text: PDF