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

50 Pages Posted: 21 Feb 2019

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

Beata Smarzynska Javorcik

University of Oxford - Department of Economics

Date Written: 2018

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: F160, J380, J240

Suggested Citation

Moriconi, Simone and Peri, Giovanni and Smarzynska Javorcik, Beata, The Role of Institutions and Immigrant Networks in Firms’ Offshoring Decisions (2018). CESifo Working Paper No. 7312. Available at SSRN: https://ssrn.com/abstract=3338641

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)

Beata Smarzynska Javorcik

University of Oxford - Department of Economics ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom

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