The Geographical Constraints on a Manufacturing Firm's Political Strategies

• In Event: Geography and the Political Economy of Trade

Abstract

How do manufacturing firms strategically respond to trade competition in the United States? More specifically, why do some firms choose political strategies such as lobbying or applying for support from government programs, while other firms choose non-political responses like applying for loans or investing in R\&D? The existing literature focuses on the committee assignment of a legislator who represents the headquarters location of a firm, ignoring the fact the firms which are more politically active are also larger, often having tens, hundreds, or even thousands of subsidiaries. We argue that a crucial missing piece to this story is the geographic distribution of a firm's subsidiaries which determine which legislators and parties a firm is connected to. We assemble a massive dataset containing every manufacturing firm and its subsidiaries in the United States between 1997 and 2012 to show how geography determines political connections and constrains the strategic responses a firm chooses when confronted with growing import penetration. Our findings provide a new explanation for the bi-partisan nature of campaign contributions made by the political action committees (PACs) and proposes a new way of thinking about how free trade's winners and losers respond to increasing import competition.

Authors

• James Hodgdon Bisbee, NYU

• Hye Young You, New York University