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Delaying the Timing of Offshoring Low-Skilled Tasks

  • Felipa de Mello-Sampayo

    ()

    (ISCTE - Department of Economics and UNIDE-ERC)

  • Sofia de Sousa-Vale

    (ISCTE - Department of Economics and UNIDE-ERC)

  • Francisco Camões

    (ISCTE - Department of Economics and UNIDE-ERC)

This paper examines the impact of uncertainty on offshoring low-skilled tasks. The model shows that greater demand uncertainty adversely affects the expected profit and timing of offshoring. It is also shown that a home country tax rate deduction increases the volatility of the expected profits, making offshoring appear to be more risky. One policy implication of our results is that, in order to delay relocation of MNE’s production from the home country, a government should adopt tax rate deduction rather than a direct subsidy because the former is more economical and effective than the latter.

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File URL: http://bru-unide.iscte.pt/RePEc/pdfs/ERCwp1208.pdf
File Function: First version, 2008
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Paper provided by ISCTE-IUL, Business Research Unit (BRU-IUL) in its series Working Papers Series 1 with number ercwp1208.

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Length: 18 pages
Date of creation: 15 Jun 2008
Date of revision:
Handle: RePEc:isc:iscwp1:ercwp1208
Contact details of provider: Web page: http://bru-unide.iscte.pt/
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  8. de Brito, José Brandão & de Mello Sampayo, Felipa, 2002. "The timing and the probability of FDI: an application to the US multinational enterprises," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 A3-4, International Conferences on Panel Data.
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  11. Dixit, A., 1988. "Entry And Exit Decisions Under Uncertainty," Papers 91, Princeton, Department of Economics - Financial Research Center.
  12. Elhanan Helpman, 2006. "Trade, FDI, and the Organization of Firms," Journal of Economic Literature, American Economic Association, vol. 44(3), pages 589-630, September.
  13. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, June.
  14. Gene M. Grossman & Esteban Rossi-Hansberg, 2008. "Trading Tasks: A Simple Theory of Offshoring," American Economic Review, American Economic Association, vol. 98(5), pages 1978-97, December.
  15. Pennings, Enrico & Sleuwaegen, Leo, 2004. "The choice and timing of foreign direct investment under uncertainty," Economic Modelling, Elsevier, vol. 21(6), pages 1101-1115, December.
  16. Gene M. Grossman & Esteban Rossi-Hansberg, 2006. "The rise of offshoring: it's not wine for cloth anymore," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 59-102.
  17. de Mello Sampayo, F., 2000. "The Location of the United States' FDI under the Share Gravity Model," Discussion Papers 00-04, Department of Economics, University of Birmingham.
  18. Aizenman, Joshua & Marion, Nancy, 2004. "The merits of horizontal versus vertical FDI in the presence of uncertainty," Journal of International Economics, Elsevier, vol. 62(1), pages 125-148, January.
  19. Markusen, James R., 1984. "Multinationals, multi-plant economies, and the gains from trade," Journal of International Economics, Elsevier, vol. 16(3-4), pages 205-226, May.
  20. Jose Brandao de Brito & Felipa de Mello Sampayo, 2005. "The timing and probability of FDI: an application to US multinational enterprises," Applied Economics, Taylor & Francis Journals, vol. 37(4), pages 417-437.
  21. Felipa de Mello-Sampayo, 2009. "Competing-destinations gravity model: an application to the geographic distribution of FDI," Applied Economics, Taylor & Francis Journals, vol. 41(17), pages 2237-2253.
  22. Dixit, Avinash K, 1989. "Hysteresis, Import Penetration, and Exchange Rate Pass-Through," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 205-28, May.
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