Institutions and Offshoring Decision
12:00 - 13:00
Several studies show that the choice to establish an FDI may be affected by the institutional environment of the receiving country. Property rights theory suggests that contract enforcement matters differentially across sectors. The novelty of this study is to test whether institutions matter differentially across different sectors in FDI decision. Using data on U.S. Direct Investment Abroad, I find that institutional characteristics of the country and the industry positively affect the volume of offshoring between U.S. companies and their affiliates. This depends also on the type of relationship between parent company and foreign affliate. The suggested argument is stronger for the intermediate products, while the evidence is weak for products ready for sale.