Offshoring and Corruption: Does Corruption Matter
AbstractCorruption is often portrayed as a barrier to trade and investment capable of altering international investment patterns. Here, we analyze how firms’ choice of country and the volume of offshored material inputs are affected by corruption in target economies. Taking stance from the gravity model of trade, the analysis suggests that corruption is a deterrent for offshoring. Firms avoid corrupt countries and, given that destination country has been chosen it reduces the volume of offshored inputs. The negative impact of corruption is largest in poor countries, and internationalized firms trading with many countries use their flexibility to avoid corrupt countries. Given the importance of these firms as international investors, this is yet another reason for why fighting corruption is important.
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Bibliographic InfoPaper provided by Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies in its series Working Paper Series in Economics and Institutions of Innovation with number 237.
Length: 29 pages
Date of creation: 01 Dec 2010
Date of revision:
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Postal: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, SE-100 44 Stockholm, Sweden
Phone: +46 8 790 95 63
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Corruption; Offshoring; Gravity; Firm level data;
Find related papers by JEL classification:
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
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