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Delaying the Timing of Offshoring Low-Skilled Tasks

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Author Info
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://erc.unide.iscte.pt/wpi/ERCwp1208.pdf
File Format: application/pdf
File Function: First version, 2008
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Publisher Info
Paper provided by ISCTE, UNIDE, Economics Research Centre in its series Working Papers with number ercwp1208.

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Length: 18 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:isc:wpaper:ercwp1208

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

Find related papers by JEL classification:
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

References listed on IDEAS
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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. [Downloadable!] (restricted)
    Other versions:
  2. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  3. David L. Carr & James R. Markusen & Keith E. Maskus, 2001. "Estimating the Knowledge-Capital Model of the Multinational Enterprise," American Economic Review, American Economic Association, vol. 91(3), pages 693-708, June. [Downloadable!] (restricted)
    Other versions:
  4. Aizenman, Joshua & Marion, Nancy, 2004. "The merits of horizontal versus vertical FDI in the presence of uncertainty," Journal of International Economics, Elsevier, vol. 62(1), pages 125-148, January. [Downloadable!] (restricted)
    Other versions:
  5. Pennings, Enrico, 2000. "Taxes and stimuli of investment under uncertainty," European Economic Review, Elsevier, vol. 44(2), pages 383-391, February. [Downloadable!] (restricted)
  6. Karolina Ekholm & Rikard Forslid & James Markusen, 2003. "Export-Platform Foreign Direct Investment," NBER Working Papers 9517, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. 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. [Downloadable!] (restricted)
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  8. Gene M. Grossman & Esteban Rossi-Hansberg, 2006. "Trading Tasks: A Simple Theory of Offshoring," NBER Working Papers 12721, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  9. José Brandão 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, March. [Downloadable!] (restricted)
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