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

Simone Moriconi, Giovanni Peri, Dario Pozzoli*

*Corresponding author for this work

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The offshoring of production by firms has expanded dramatically in recent decades, increasing their potential for economic growth. What determines the location of offshore production? How do countries’ policies and characteristics affect a firm's decision about where to offshore? Do firms choose specific countries because of the countries’ policies or because they know them better? In this paper, we use a rich dataset on Danish firms to analyze how decisions to offshore production depend on the institutional characteristics of the country and firm‐specific bilateral networks. We find that institutions that reduce credit risk and corruption increase the probability that firms will offshore there, while those that increase regulation in the labour market decrease this 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. Finally, our analysis reveals that the negative impact of institutions that hinder offshoring is attenuated by a strong bilateral network of foreign workers.
Original languageEnglish
JournalCanadian Journal of Economics
Issue number4
Pages (from-to)1745-1792
Number of pages48
Publication statusPublished - Nov 2020

Bibliographical note

Published online 09 October 2020.

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