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The Dynamics of Offshoring and Institutions

Previous research has recognized that weak institutions can hamper investments and alter patterns of trade. However, little is known about the impact of institutional quality on offshoring. This is surprising, given that offshoring has become an important part of many firms’ internationalization strategy. This study uses detailed Swedish firm-level data on production and trade in combination with a large set of institutional measures of the target economies to study the relationship between institutional quality and offshoring. The results suggest that weak institutions are negatively related to offshoring in general and to offshoring of R&D-intensive goods in particular. Furthermore, firms that are able to establish long-term contracts do so by starting small and successively deepening their engagements. These results are robust to a large number of conometric pecifications and various measures of institutional quality.

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Paper provided by The Ratio Institute in its series Ratio Working Papers with number 190.

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Length: 40 pages
Date of creation: 11 Apr 2012
Date of revision:
Handle: RePEc:hhs:ratioi:0190
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