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Delaying the timing of offshoring low-skilled tasks

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  • de Mello-Sampayo, Felipa
  • de Sousa-Vale, Sofia
  • Camões, Francisco

Abstract

This paper examines the impact of uncertainty on offshoring low-skilled tasks. The model shows that greater demand uncertainty adversely affects the expected profit and timing of offshoring. It is also shown that a home-country tax rate deduction increases the volatility of the expected profits, making offshoring appear to be more risky. One policy implication of our results is that, in order to delay relocation of MNE's production from the home country, a government should adopt tax rate deduction rather than a direct subsidy because the former is more economical and effective than the latter.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 27 (2010)
Issue (Month): 5 (September)
Pages: 951-958

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Handle: RePEc:eee:ecmode:v:27:y:2010:i:5:p:951-958

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Web page: http://www.elsevier.com/locate/inca/30411

Related research

Keywords: Offshoring Multinational enterprises Option-pricing model Fiscal policy;

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References

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  1. Elhanan Helpman, 2006. "Trade, FDI, and the Organization of Firms," Journal of Economic Literature, American Economic Association, vol. 44(3), pages 589-630, September.
  2. S. Lael Brainard, 1993. "A Simple Theory of Multinational Corporations and Trade with a Trade-Off Between Proximity and Concentration," NBER Working Papers 4269, National Bureau of Economic Research, Inc.
  3. Pennings, Enrico & Sleuwaegen, Leo, 2004. "The choice and timing of foreign direct investment under uncertainty," Economic Modelling, Elsevier, vol. 21(6), pages 1101-1115, December.
  4. Joshua Aizenman & Ilan Noy, 2005. "FDI and Trade – Two Way Linkages?," Working Papers 200505, University of Hawaii at Manoa, Department of Economics.
  5. Joshua Aizenman & Nancy Marion, 2001. "The Merits of Horizontal versus Vertical FDI in the Presence of Uncertainty," NBER Working Papers 8631, National Bureau of Economic Research, Inc.
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  7. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany.
  8. Gene M. Grossman & Esteban Rossi-Hansberg, 2006. "The rise of offshoring: it's not wine for cloth anymore," Proceedings, Federal Reserve Bank of Kansas City, pages 59-102.
  9. Felipa De Mello-Sampayo, 2007. "The Location of the United States' FDI Under the Share Gravity Model," International Economic Journal, Korean International Economic Association, vol. 21(4), pages 491-519.
  10. Pennings, Enrico, 2000. "Taxes and stimuli of investment under uncertainty," European Economic Review, Elsevier, vol. 44(2), pages 383-391, February.
  11. Felipa de Mello-Sampayo, 2009. "Competing-destinations gravity model: an application to the geographic distribution of FDI," Applied Economics, Taylor and Francis Journals, vol. 41(17), pages 2237-2253.
  12. Pindyck, Robert S, 1988. "Irreversible Investment, Capacity Choice, and the Value of the Firm," American Economic Review, American Economic Association, vol. 78(5), pages 969-85, December.
  13. Horstmann, Ignatius J. & Markusen, James R., 1992. "Endogenous market structures in international trade (natura facit saltum)," Journal of International Economics, Elsevier, vol. 32(1-2), pages 109-129, February.
  14. Markusen, James R., 1984. "Multinationals, multi-plant economies, and the gains from trade," Journal of International Economics, Elsevier, vol. 16(3-4), pages 205-226, May.
  15. de Brito, José Brandão & de Mello Sampayo, Felipa, 2002. "The timing and the probability of FDI: an application to the US multinational enterprises," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 A3-4, International Conferences on Panel Data.
  16. Ethier, Wilfred J. & Horn, Henrik, 1990. "Managerial control of international firms and patterns of direct investment," Journal of International Economics, Elsevier, vol. 28(1-2), pages 25-45, February.
  17. Gene M. Grossman & Esteban Rossi-Hansberg, 2008. "Trading Tasks: A Simple Theory of Offshoring," American Economic Review, American Economic Association, vol. 98(5), pages 1978-97, December.
  18. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Scholarly Articles 3445092, Harvard University Department of Economics.
  19. Jose Brandao de Brito & Felipa de Mello Sampayo, 2005. "The timing and probability of FDI: an application to US multinational enterprises," Applied Economics, Taylor and Francis Journals, vol. 37(4), pages 417-437.
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