KTH/CESIS Working Paper Series in Economics and Institutions of Innovation
Patrik Karpaty and Patrik Gustavsson Tingvall
Offshoring of Services and Corruption: Do Firms Escape Corrupt Countries?
Abstract: In this paper, we analyze how the offshoring of services
by Swedish firms is affected by corruption in target economies. Taking
stance from the gravity model of trade, we analyze how the choice of
country, volume and composition of offshored services is affected by the
presence of corruption in target economies. The results suggest that
corruption is a deterrent for service offshoring. Firms avoid corrupt
countries, and corruption reduces the amount of offshored services. In
addition, the sensitivity to corruption is highest for poor countries, and
large and internationalized firms are the ones that tend to be the most
sensitive to corruption. Given the importance of large firms as
international investors and subcontractors, this adds yet another argument
for fighting corruption.
Keywords: Corruption; Services; Offshoring; Gravity model; Firm level data; (follow links to similar papers)
JEL-Codes: C23; D21; F23; L24; (follow links to similar papers)
31 pages, March 25, 2011
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