The Role of Institutions and Immigrant Networks in Firms' Offshoring Decisions

50 Pages Posted: 29 Oct 2018

See all articles by Simone Moriconi

Simone Moriconi

Catholic University of the Sacred Heart of Milan

Giovanni Peri

University of California, Davis - Department of Economics

Dario Pozzoli

Aarhus University - School of Business and Social Sciences

Abstract

The offshoring of production by multinational firms has expanded dramatically in recent decades, increasing these firms' potential for economic growth and technological transfers across countries. What determines the location of offshore production? How do countries' policies and characteristics affect the firm's decision about where to offshore? Do firms choose specific countries because of their policies or because they know them better? In this paper, we use a very rich dataset on Danish firms to analyze how decisions to offshore production depend on the institutional characteristics of the country and firm-specific bilateral connections. We find that institutions that enhance investor protection and reduce corruption increase the probability that firms offshore there, while those that increase regulation in the labor market decrease such probability. We also show that a firm's probability of offshoring increases with the share of its employees who are immigrants from that country of origin.

Keywords: offshoring, product market, labor regulations, networks, fixed start-up costs

JEL Classification: F16, J38, J24

Suggested Citation

Moriconi, Simone and Peri, Giovanni and Pozzoli, Dario, The Role of Institutions and Immigrant Networks in Firms' Offshoring Decisions. IZA Discussion Paper No. 11888. Available at SSRN: https://ssrn.com/abstract=3273728

Simone Moriconi (Contact Author)

Catholic University of the Sacred Heart of Milan ( email )

Largo Gemelli, 1
Via Necchi 9
Milan, MI 20123
Italy

Giovanni Peri

University of California, Davis - Department of Economics ( email )

One Shields Drive
Davis, CA 95616-8578
United States
530-752-3033 (Phone)
530-752-9382 (Fax)

Dario Pozzoli

Aarhus University - School of Business and Social Sciences ( email )

Nordre Ringgade 1
Aarhus C, DK-8000
Denmark

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