Offshoring under uncertainty
Wilhelm Kohler and
European Economic Review, 2019, vol. 118, issue C, 158-180
We develop a theoretical framework explaining firms’ offshoring decisions in the presence of uncertainty. Our model highlights the role of labor market institutions in shaping a firm’s ability to effectively react to future shocks, yielding a sharp prediction on the prevalence of offshoring in a given industry: The propensity of firms to source intermediate inputs from foreign rather than domestic suppliers decreases in the foreign country’s labor market rigidity, and this effect is particularly pronounced in industries with higher volatility. Combining industry-level data on the U.S. offshoring intensity with measures of labor market rigidity and industry volatility, we find empirical evidence strongly supportive of the model’s predictions.
Keywords: Offshoring; Uncertainty; Labor market rigidity; Industry volatility (search for similar items in EconPapers)
JEL-codes: F14 F16 F23 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:118:y:2019:i:c:p:158-180
Access Statistics for this article
European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer
More articles in European Economic Review from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().