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Delaying the Timing of Offshoring Low-Skilled Tasks

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  • Felipa de Mello-Sampayo

    ()
    (ISCTE - Department of Economics and UNIDE-ERC)

  • Sofia de Sousa-Vale

    (ISCTE - Department of Economics and UNIDE-ERC)

  • Francisco Camões

    (ISCTE - Department of Economics and UNIDE-ERC)

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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File URL: http://bru-unide.iscte.pt/RePEc/pdfs/ERCwp1208.pdf
File Function: First version, 2008
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Bibliographic Info

Paper provided by ISCTE-IUL, Business Research Unit (BRU-IUL) in its series Working Papers Series 1 with number ercwp1208.

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Length: 18 pages
Date of creation: 15 Jun 2008
Date of revision:
Handle: RePEc:isc:iscwp1:ercwp1208

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Web page: http://bru-unide.iscte.pt/
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Related research

Keywords: Offshoring; Multinational Enterprises; Option-Pricing Model; Fiscal Policy;

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References

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  1. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-38, June.
  2. de Mello Sampayo, F., 2000. "The Location of the United States' FDI under the Share Gravity Model," Discussion Papers 00-04, Department of Economics, University of Birmingham.
  3. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany.
  4. 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.
  5. 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.
  6. 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.
  7. Joshua Aizenman & Ilan Noy, 2005. "FDI and Trade -- Two Way Linkages?," NBER Working Papers 11403, National Bureau of Economic Research, Inc.
  8. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 451-71, June.
  9. Pennings, Enrico, 2000. "Taxes and stimuli of investment under uncertainty," European Economic Review, Elsevier, vol. 44(2), pages 383-391, February.
  10. 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.
  11. Felipa de Mello-Sampayo, 2009. "Competing-destinations gravity model: an application to the geographic distribution of FDI," Applied Economics, Taylor & Francis Journals, vol. 41(17), pages 2237-2253.
  12. Gene M. Grossman & Esteban Rossi-Hansberg, 2006. "Trading Tasks: A Simple Theory of Offshoring," NBER Working Papers 12721, National Bureau of Economic Research, Inc.
  13. Gene M. Grossman & Esteban Rossi-Hansberg, 2006. "The rise of offshoring: it's not wine for cloth anymore," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 59-102.
  14. Elhanan Helpman, 2006. "Trade, FDI, and the Organization of Firms," Journal of Economic Literature, American Economic Association, vol. 44(3), pages 589-630, September.
  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. Jose Brandao de Brito & Felipa de Mello Sampayo, 2005. "The timing and probability of FDI: an application to US multinational enterprises," Applied Economics, Taylor & Francis Journals, vol. 37(4), pages 417-437.
  17. 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.
  18. 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.
  19. 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.
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Cited by:
  1. Anwar, Sajid, 2013. "Outsourcing and the skilled–unskilled wage gap," Economics Letters, Elsevier, vol. 118(2), pages 347-350.

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