The Impact of Business Related Institutions on Offshoring

Sammanfattning: This paper examines the effect of institutional quality on offshoring decisions for Swedish firms. The analysis focuses on institutional variables that are directly related to the business environment including regulation on trade, business and financial markets as well as corruption. The paper also examines if the impact of institutions differ depending on the size and R&D-intensity of the offshoring firm as well as the distance to the offshoring country. Taking stance from the gravity model of trade the result of the study shows that inferior institutions have a negative impact on both the choice of country as well as the volume of offshoring. Results also suggests that large firms tends to avoid corrupt countries when offshoring while firms with high R&D expenditures are shown to be discouraged by price instabilities. The study does not provide any evidence that distance to the offshoring country influence the effect of institutions. The negative impact provide further argument for the importance of institutions for economic development and that institutional reform is essential for emerging economies that seeks to attract foreign firms.