The Behavior of Intrafirm Trade Prices in U.S. International Price Data

Kimberly A. Clausing


This paper analyzes data for the Bureau of Labor Statistics on international prices between 1997 and 1999 in order to investigate the pricing patterns of intrafirm trade. The results indicate several important ways in which intrafirm trade prices differ from non-intrafirm prices. First, intrafirm trade prices appear to be influenced by the tax-minimization strategies of multinational firms. There is a strong and statistically significant relationship between countries' tax rates and the prices of intrafirm imports and exports exchanged with those countries. Second, intrafirm trade prices are typically more correlated with exchange rate variables. Third, price changes for intrafirm trade products are less frequent. Still, the overall price patterns for intrafirm trade are quite similar to those for non-intrafirm trade. The average magnitudes of price changes are comparable, and the patterns of price changes over time are also similar.