Immigrant employment and the contract enforcement costs of offshoring

Andreas Hatzigeorgiou (), Patrik Karpaty (), Richard Kneller and Magnus Lodefalk
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Andreas Hatzigeorgiou: KTH Royal Institute of Technology
Patrik Karpaty: Örebro University

Review of World Economics (Weltwirtschaftliches Archiv), 2024, vol. 160, issue 3, No 7, 953-981

Abstract: Abstract Offshoring continues to be an important dimension of firms’ internationalization choices. However, offshoring also increases contract enforcement costs by inhibiting the coordination and monitoring of performance. Immigrant employees may reduce such costs through their specific knowledge of the employer, their country of birth and access to foreign networks. In this paper, we investigate the role of immigrant employees within firms on firm offshoring, employing rich administrative Swedish microlevel data that include specific information about the characteristics of employees, manufacturing firms and their bilateral offshoring. Our results support the hypothesis that immigrant employees increase offshoring by lowering contract enforcement costs. Hiring one additional immigrant employee is linked to a relatively larger increase in offshoring at the intensive than the extensive margin, on average. The association to offshoring is considerably stronger for skilled immigrant employees and for contract and R&D intensive offshoring. Instrumental variable estimations demonstrate qualitatively similar results, while a placebo test with randomized immigrant employment does not generate any link between immigrants and offshoring.

Keywords: Offshoring; Contract enforcement; Immigrant employees; Networks; Information (search for similar items in EconPapers)
JEL-codes: D21 D83 F14 F22 F23 (search for similar items in EconPapers)
Date: 2024
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Working Paper: Immigrant Employment and the Contract Enforcement Costs of Offshoring (2022)
Working Paper: Immigrant Employment and the Contract Enforcement Costs of Offshoring (2022)
Working Paper: Immigrant Employment and the Contract Enforcement Costs of Offshoring (2022)
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DOI: 10.1007/s10290-023-00519-z

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