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Offshoring and Corruption: Does Corruption Matter

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  • Tingvall, Patrik Gustavsson

    (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)

Abstract

Corruption 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.

Suggested Citation

  • Tingvall, Patrik Gustavsson, 2010. "Offshoring and Corruption: Does Corruption Matter," Working Paper Series in Economics and Institutions of Innovation 237, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    • Handle: RePEc:hhs:cesisp:0237
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    References listed on IDEAS

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    Cited by:

    1. Zsoka Koczan & Alexander Plekhanov, 2013. "How important are non-tariff barriers? Complementarity of infrastructure and institutions of trading partners," Working Papers 159, European Bank for Reconstruction and Development, Office of the Chief Economist.

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    More about this item

    Keywords

    Corruption; Offshoring; Gravity; Firm level data;
    All these keywords.

    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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