• Media type: Report; E-Book
  • Title: Offshoring under Uncertainty
  • Contributor: Kohler, Wilhelm [Author]; Kukharskyy, Bohdan [Author]
  • Published: Munich: Center for Economic Studies and ifo Institute (CESifo), 2018
  • Language: English
  • Keywords: F16 ; industry volatility ; uncertainty ; offshoring ; F23 ; F14 ; labor market rigidity
  • Origination:
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  • Description: We develop a theoretical framework to explain firms’ offshoring decisions in the presence of uncertainty. This model highlights the role of labor market institutions in shaping a firm’s ability to effectively react upon future shocks, yielding a sharp prediction of the prevalence of offshoring in a given industry: The propensity of firms to source intermediate inputs from foreign rather than domestic suppliers decreases in a 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.
  • Access State: Open Access