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The causal effect of institutional quality on outsourcing

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  • Hein Roelfsema
  • Yi Zhang

Abstract

We empirically investigate the relationship between institutional quality and outsourcing to developing economies. To examine the within-country time trend, in contrast to previous cross-sectional studies, this article constructs a time-varying industry-based outsourcing proxy for 89 countries over 25 years (1980--2004). The resulting panel data allow us to identify the causal relationship by controlling for the fixed effects and dynamic factors. We find a significant positive effect of local institutional improvements on outsourcing within lower-middle income countries. In low, upper-middle and high income developing countries, institutional quality is not an important determinant of international outsourcing.

Suggested Citation

  • Hein Roelfsema & Yi Zhang, 2012. "The causal effect of institutional quality on outsourcing," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 21(6), pages 895-920, January.
  • Handle: RePEc:taf:jitecd:v:21:y:2012:i:6:p:895-920
    DOI: 10.1080/09638199.2011.557161
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    1. Pol AntrĂ s & Elhanan Helpman, 2006. "Contractual Frictions and Global Sourcing," NBER Working Papers 12747, National Bureau of Economic Research, Inc.
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