IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_7312.html
   My bibliography  Save this paper

The Role of Institutions and Immigrant Networks in Firms’ Offshoring Decisions

Author

Listed:
  • Simone Moriconi
  • Giovanni Peri
  • Dario Pozzoli

Abstract

The offshoring of production by multinational firms has expanded dramatically in recent decades, increasing these firms’ potential for economic growth and technological transfers across countries. What determines the location of offshore production? How do countries' policies and characteristics affect the firm’s decision about where to offshore? Do firms choose specific countries because of their policies or because they know them better? In this paper, we use a very rich dataset on Danish firms to analyze how decisions to offshore production depend on the institutional characteristics of the country and firm-specific bilateral connections. We find that institutions that enhance investor protection and reduce corruption increase the probability that firms offshore there, while those that increase regulation in the labor market decrease such probability. We also show that a firm’s probability of offshoring increases with the share of its employees who are immigrants from that country of origin.

Suggested Citation

  • Simone Moriconi & Giovanni Peri & Dario Pozzoli, 2018. "The Role of Institutions and Immigrant Networks in Firms’ Offshoring Decisions," CESifo Working Paper Series 7312, CESifo.
    • Handle: RePEc:ces:ceswps:_7312
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp7312.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Giorgio Barba Navaretti & Matteo Bugamelli & Fabiano Schivardi & Carlo Altomonte & Daniel Horgos & Daniela Maggioni, . "The global operations of European firms - The second EFIGE policy report," Blueprints, Bruegel, number 581, June.
    2. Anna Gumpert, 2018. "The Organization of Knowledge in Multinational Firms," Journal of the European Economic Association, European Economic Association, vol. 16(6), pages 1929-1976.
    3. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2002. "The Regulation of Entry," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 1-37.
    4. Thomas Chaney, 2014. "The Network Structure of International Trade," American Economic Review, American Economic Association, vol. 104(11), pages 3600-3634, November.
    5. Bernard, Andrew B. & Bradford Jensen, J., 1999. "Exceptional exporter performance: cause, effect, or both?," Journal of International Economics, Elsevier, vol. 47(1), pages 1-25, February.
    6. Mion, Giordano & Opromolla, Luca David & Sforza, Alessandro, 2016. "The diffusion of knowledge via managers’ mobility," LSE Research Online Documents on Economics 69035, London School of Economics and Political Science, LSE Library.
    7. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, vol. 98(4), pages 1707-1721, September.
    8. Ottaviano, Gianmarco I.P. & Peri, Giovanni & Wright, Greg C., 2018. "Immigration, trade and productivity in services: Evidence from U.K. firms," Journal of International Economics, Elsevier, vol. 112(C), pages 88-108.
    9. David Hummels & Jakob R. Munch & Chong Xiang, 2018. "Offshoring and Labor Markets," Journal of Economic Literature, American Economic Association, vol. 56(3), pages 981-1028, September.
    10. Pol Antràs & Esteban Rossi-Hansberg, 2009. "Organizations and Trade," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 43-64, May.
    11. Mette Foged & Giovanni Peri, 2016. "Immigrants' Effect on Native Workers: New Analysis on Longitudinal Data," American Economic Journal: Applied Economics, American Economic Association, vol. 8(2), pages 1-34, April.
    12. David Card, 2005. "Is the New Immigration Really so Bad?," Economic Journal, Royal Economic Society, vol. 115(507), pages 300-323, November.
    13. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    14. repec:hal:spmain:info:hdl:2441/6apm7lruv088iagm4rv2c33jtg is not listed on IDEAS
    15. Philippe Aghion, 2005. "Growth and Institutions," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 32(1), pages 3-18, March.
    16. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
    17. Anthony Briant & Pierre-Philippe Combes & Miren Lafourcade, 2014. "Product Complexity, Quality of Institutions and the Protrade Effect of Immigrants," The World Economy, Wiley Blackwell, vol. 37(1), pages 63-85, January.
    18. Andrew B. Bernard & Valerie Smeets & Frederic Warzynski, 2017. "Rethinking deindustrialization," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 32(89), pages 5-38.
    19. Andrew B. Bernard & Teresa C. Fort, 2015. "Factoryless Goods Producing Firms," American Economic Review, American Economic Association, vol. 105(5), pages 518-523, May.
    20. Sofronis K. Clerides & Saul Lach & James R. Tybout, 1998. "Is Learning by Exporting Important? Micro-Dynamic Evidence from Colombia, Mexico, and Morocco," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(3), pages 903-947.
    21. Combes, Pierre-Philippe & Lafourcade, Miren & Mayer, Thierry, 2005. "The trade-creating effects of business and social networks: evidence from France," Journal of International Economics, Elsevier, vol. 66(1), pages 1-29, May.
    22. Giovanni Peri & Francisco Requena‐Silvente, 2010. "The trade creation effect of immigrants: evidence from the remarkable case of Spain," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 43(4), pages 1433-1459, November.
    23. Pol Antràs & Mihir A. Desai & C. Fritz Foley, 2009. "Multinational Firms, FDI Flows, and Imperfect Capital Markets," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(3), pages 1171-1219.
    24. Braumoeller, Bear F., 2004. "Hypothesis Testing and Multiplicative Interaction Terms," International Organization, Cambridge University Press, vol. 58(4), pages 807-820, October.
    25. Kusum Mundra, 2014. "Immigration and Trade Creation for the United States: Role of Immigrant Occupation," The International Trade Journal, Taylor & Francis Journals, vol. 28(4), pages 311-343, October.
    26. James E. Anderson & Douglas Marcouiller, 2002. "Insecurity And The Pattern Of Trade: An Empirical Investigation," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 342-352, May.
    27. Olney, William W., 2013. "A race to the bottom? Employment protection and foreign direct investment," Journal of International Economics, Elsevier, vol. 91(2), pages 191-203.
    28. Paul Goldsmith-Pinkham & Isaac Sorkin & Henry Swift, 2020. "Bartik Instruments: What, When, Why, and How," American Economic Review, American Economic Association, vol. 110(8), pages 2586-2624, August.
    29. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(2), pages 441-487.
    30. Anna Piil Damm & Christian Dustmann, 2014. "Does Growing Up in a High Crime Neighborhood Affect Youth Criminal Behavior?," American Economic Review, American Economic Association, vol. 104(6), pages 1806-1832, June.
    31. Felbermayr, Gabriel J. & Toubal, Farid, 2012. "Revisiting the Trade-Migration Nexus: Evidence from New OECD Data," World Development, Elsevier, vol. 40(5), pages 928-937.
    32. Don Wagner & Keith Head & John Ries, 2002. "Immigration and the Trade of Provinces," Scottish Journal of Political Economy, Scottish Economic Society, vol. 49(5), pages 507-525, November.
    33. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
    34. repec:hal:spmain:info:hdl:2441/781v6i5nuc9v6okbq7i1iqqsk1 is not listed on IDEAS
    35. Acemoglu, Daron & Johnson, Simon & Robinson, James A., 2005. "Institutions as a Fundamental Cause of Long-Run Growth," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 6, pages 385-472, Elsevier.
    36. Mion, Giordano & Opromolla, Luca David, 2014. "Managers' mobility, trade performance, and wages," Journal of International Economics, Elsevier, vol. 94(1), pages 85-101.
    37. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," Post-Print hal-03579844, HAL.
    38. Kaufmann, Daniel & Kraay, Aart & Mastruzzi, Massimo, 2010. "The worldwide governance indicators : methodology and analytical issues," Policy Research Working Paper Series 5430, The World Bank.
    39. Alberto Alesina & Paola Giuliano, 2015. "Culture and Institutions," Journal of Economic Literature, American Economic Association, vol. 53(4), pages 898-944, December.
    40. Anna Piil Damm, 2009. "Ethnic Enclaves and Immigrant Labor Market Outcomes: Quasi-Experimental Evidence," Journal of Labor Economics, University of Chicago Press, vol. 27(2), pages 281-314, April.
    41. W. Kip Viscusi & Joseph E. Harrington & John M. Vernon, 2005. "Economics of Regulation and Antitrust, 4th Edition," MIT Press Books, The MIT Press, edition 4, volume 1, number 026222075x, April.
    42. repec:hal:pseose:halshs-00942726 is not listed on IDEAS
    43. David Hummels & Rasmus J?rgensen & Jakob Munch & Chong Xiang, 2014. "The Wage Effects of Offshoring: Evidence from Danish Matched Worker-Firm Data," American Economic Review, American Economic Association, vol. 104(6), pages 1597-1629, June.
    44. repec:bla:scotjp:v:49:y:2002:i:5:p:507-25 is not listed on IDEAS
    45. David Greenaway & Richard Kneller, 2004. "Exporting and Productivity in the United Kingdom," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 20(3), pages 358-371, Autumn.
    46. Thomas Chaney, 2014. "The Network Structure of International Trade," Post-Print hal-03579668, HAL.
    47. repec:hal:pseose:hal-00783759 is not listed on IDEAS
    48. Edward Miguel & Shanker Satyanath & Ernest Sergenti, 2004. "Economic Shocks and Civil Conflict: An Instrumental Variables Approach," Journal of Political Economy, University of Chicago Press, vol. 112(4), pages 725-753, August.
    49. Gene M. Grossman & Esteban Rossi-Hansberg, 2008. "Trading Tasks: A Simple Theory of Offshoring," American Economic Review, American Economic Association, vol. 98(5), pages 1978-1997, December.
    50. Gould, David M, 1994. "Immigrant Links to the Home Country: Empirical Implications for U.S. Bilateral Trade Flows," The Review of Economics and Statistics, MIT Press, vol. 76(2), pages 302-316, May.
    51. Jennifer P. Poole, 2013. "Knowledge Transfers from Multinational to Domestic Firms: Evidence from Worker Mobility," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 393-406, May.
    52. repec:hal:spmain:info:hdl:2441/7an8r1ubqs93caeqs80puld0tp is not listed on IDEAS
    53. James E. Rauch & Vitor Trindade, 2002. "Ethnic Chinese Networks In International Trade," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 116-130, February.
    54. Keith Head & John Ries, 1998. "Immigration and Trade Creation: Econometric Evidence from Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 31(1), pages 47-62, February.
    55. Daniel Berkowitz & Johannes Moenius & Katharina Pistor, 2006. "Trade, Law, and Product Complexity," The Review of Economics and Statistics, MIT Press, vol. 88(2), pages 363-373, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Valeria Gattai & Piergiovanna Natale & Francesca Rossi, 2022. "Board Diversity and Outward FDI: Evidence from Europe," Working Papers 491, University of Milano-Bicocca, Department of Economics, revised Mar 2022.
    2. Anthony Edo & Lionel Ragot & Hillel Rapoport & Sulin Sardoschau & Andreas Steinmayr & Arthur Sweetman, 2020. "An introduction to the economics of immigration in OECD countries," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(4), pages 1365-1403, November.
    3. Di Ubaldo, Mattia & Gasiorek, Michael, 2022. "Non-trade provisions in trade agreements and FDI," European Journal of Political Economy, Elsevier, vol. 75(C).
    4. Brunello, Giorgio & Lodigiani, Elisabetta & Rocco, Lorenzo, 2020. "Does low-skilled immigration increase profits? Evidence from Italian local labour markets," Regional Science and Urban Economics, Elsevier, vol. 85(C).
    5. Gattai, Valeria & Natale, Piergiovanna & Rossi, Francesca, 2023. "Board diversity and outward FDI: Evidence from europe," Economic Modelling, Elsevier, vol. 120(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. William W. Olney & Dario Pozzoli, 2021. "The Impact of Immigration on Firm-Level Offshoring," The Review of Economics and Statistics, MIT Press, vol. 103(1), pages 177-195, March.
    2. Hatzigeorgiou, Andreas & Lodefalk, Magnus, 2017. "Anti-Migration as a Threat to Internationalization?," Ratio Working Papers 302, The Ratio Institute.
    3. Bailey, Michael & Gupta, Abhinav & Hillenbrand, Sebastian & Kuchler, Theresa & Richmond, Robert & Stroebel, Johannes, 2021. "International trade and social connectedness," Journal of International Economics, Elsevier, vol. 129(C).
    4. Felbermayr, Gabriel & Grossmann, Volker & Kohler, Wilhelm, 2012. "Migration, International Trade and Capital Formation: Cause or Effect?," IZA Discussion Papers 6975, Institute of Labor Economics (IZA).
    5. Hatzigeorgiou, Andreas & Karpaty, Patrik & Kneller, Richard & Lodefalk, Magnus, 2016. "Immigrant Employment and the Contract Enforcement Costs of Offshoring," Ratio Working Papers 282, The Ratio Institute, revised 01 Feb 2022.
    6. Christopher R. Parsons & L. Alan Winters, 2014. "International migration, trade and aid: a survey," Chapters, in: Robert E.B. Lucas (ed.), International Handbook on Migration and Economic Development, chapter 4, pages 65-112, Edward Elgar Publishing.
    7. Pisch, Frank & Berlingieri, Giuseppe, 2022. "Managing Export Complexity: The Role of Service Outsourcing," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 135680, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    8. Hatzigeorgiou, Andreas & Lodefalk, Magnus, 2018. "Anti-Migration as a Threat to Internationalization? A Review of the Migration-Internationalization Literature," GLO Discussion Paper Series 287, Global Labor Organization (GLO).
    9. Hatzigeorgiou, Andreas & Lodefalk, Magnus, 2018. "Do Migrants Facilitate Internationalization? A Review of the Literature," Working Papers 2018:11, Örebro University, School of Business, revised 19 Dec 2019.
    10. Andreas Hatzigeorgiou & Magnus Lodefalk, 2016. "Migrants’ Influence on Firm-level Exports," Journal of Industry, Competition and Trade, Springer, vol. 16(4), pages 477-497, December.
    11. Nunn, Nathan & Trefler, Daniel, 2014. "Domestic Institutions as a Source of Comparative Advantage," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 263-315, Elsevier.
    12. Hoch, Felix & Rudsinske, Jonas, 2021. "Building bridges: Bilateral manager connections and international trade," CIW Discussion Papers 4/2021, University of Münster, Center for Interdisciplinary Economics (CIW).
    13. Albert Millogo & Ines Trojette, 2020. "Pro-trade effects of MENA immigrants in France: does governance matter?," Economics Bulletin, AccessEcon, vol. 40(4), pages 3219-3230.
    14. Giorgia Giovannetti & Mauro Lonati, 2014. "The impact of product quality on the pro-trade elasticity of immigrants," Working Papers - Economics wp2014_11.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
    15. Dieter Pennerstorfer, 2016. "Export, Migration and Costs of Trade: Evidence from Central European Firms," Regional Studies, Taylor & Francis Journals, vol. 50(5), pages 848-863, May.
    16. Anthony Briant & Pierre-Philippe Combes & Miren Lafourcade, 2014. "Product Complexity, Quality of Institutions and the Protrade Effect of Immigrants," The World Economy, Wiley Blackwell, vol. 37(1), pages 63-85, January.
    17. Yuheng Lin & Dooruj Rambaccussing & Yu Zhu, 2024. "The impact of international students in the UK on the cultural goods trade," French Stata Users' Group Meetings 2024 29, Stata Users Group.
    18. Gianluca Orefice & Hillel Rapoport & Gianluca Santoni, 2021. "How Do Immigrants Promote Exports? Networks, Knowledge, Diversity," CESifo Working Paper Series 9288, CESifo.
    19. Massimiliano Bratti & Luca Benedictis & Gianluca Santoni, 2014. "On the pro-trade effects of immigrants," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 150(3), pages 557-594, August.
    20. Emmanuel Dhyne & Ayumu Ken Kikkawa & Magne Mogstad & Felix Tintelnot, 2021. "Trade and Domestic Production Networks," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 88(2), pages 643-668.

    More about this item

    Keywords

    offshoring; product market; labor regulations; networks; fixed start-up costs;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_7312. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.