Institutions and offshoring behavior

ABSTRACTThis article tests whether institutions matter differentially across different sectors in offshoring behavior once the choice to invest abroad has already been made; i.e., how they affect trade between parent and foreign affiliates. Using data on US direct investment abroad, we find that institutional characteristics of the country and industry positively affect the volume of offshoring between US companies and their affiliates. This also depends on the type of relationship between the parent company and its foreign affiliate. The suggested argument is stronger for intermediate products, while evidence is weak for products ready for sale.