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Offshoring of Services and Corruption: Do Firms Escape Corrupt Countries?

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  • Karpaty, Patrik

    (Örebro University)

  • Tingvall, Patrik Gustavsson

    (Stockholm School of Economics and Centre of Excellence for Science and Innovation Studies (CESIS))

Abstract

In this paper, we analyze how the offshoring of services by Swedish firms is affected by corruption in target economies. Taking stance from the gravity model of trade, we analyze how the choice of country, volume and composition of offshored services is affected by the presence of corruption in target economies. The results suggest that corruption is a deterrent for service offshoring. Firms avoid corrupt countries, and corruption reduces the amount of offshored services. In addition, the sensitivity to corruption is highest for poor countries, and large and internationalized firms are the ones that tend to be the most sensitive to corruption. Given the importance of large firms as international investors and subcontractors, this adds yet another argument for fighting corruption.

Suggested Citation

  • Karpaty, Patrik & Tingvall, Patrik Gustavsson, 2011. "Offshoring of Services and Corruption: Do Firms Escape Corrupt Countries?," Working Paper Series in Economics and Institutions of Innovation 243, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    • Handle: RePEc:hhs:cesisp:0243
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    More about this item

    Keywords

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

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • 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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