Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/185371
Authors: 
Kohler, Wilhelm
Kukharskyy, Bohdan
Year of Publication: 
2018
Series/Report no.: 
CESifo Working Paper No. 7173
Abstract: 
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.
Subjects: 
offshoring
uncertainty
labor market rigidity
industry volatility
JEL: 
F14
F16
F23
Document Type: 
Working Paper

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