Explaining Tranquility in the Midst of Turbulence: U.S. Multinationals? Intrafirm Trade, 1966-1997

U.S. international (export and import) prices enter into the calculations of the U.S. GDP deflator and the U.S. inflation index. Over the past couple of decades, as the international sector of the U.S. economy has shot up in relative importance, concern for the correctness of those international prices has grown too (see Alterman, 1997). Correct measurement of international prices is, however, a challenging task made more complicated by multinational firms’ intrafirm transfer pricing. Considerable research has been devoted to understanding multinational transfer pricing (see Eden, 2000). By comparison, however, relatively little has gone into understanding the very driver of the multinational transfer pricing issue, viz., multinational intrafirm trade. It is, hence, this latter topic that I want to take up in this paper.