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CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology KTH/CESIS Working Paper Series in Economics and Institutions of Innovation

No 243:
Offshoring of Services and Corruption: Do Firms Escape Corrupt Countries?

Patrik Karpaty and Patrik Gustavsson Tingvall

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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