Scandinavian Working Papers in Economics

Ratio Working Papers,
The Ratio Institute

No 282: Immigrant Employment and the Contract Enforcement Costs of Offshoring

Andreas Hatzigeorgiou (), Patrik Karpaty (), Richard Kneller () and Magnus Lodefalk ()
Additional contact information
Andreas Hatzigeorgiou: The Ratio Institute, Postal: The Ratio Institute, P.O. Box 5095, SE-102 42 Stockholm, Sweden
Patrik Karpaty: Örebro University, Postal: Örebro University,, Örebro, Sweden
Richard Kneller: GEP, University of Nottingham, Postal: GEP, University of Nottingham, Nottingham
Magnus Lodefalk: The Ratio Institute and Örebro University, Postal: The Ratio Institute, P.O. Box 5095, SE-102 42 Stockholm, Sweden

Abstract: Offshoring is an important aspect of firms’ internationalization. However, offshoring comes at a cost, especially where information or trust is lacking. Immigrant employees could reduce such offshoring costs through their knowledge of their former home countries and via access to foreign networks. We develop a framework of heterogeneous final-good firms to guide our empirical analysis and draw on new employer-employee data for approximately 12,000 Swedish firms during the time period 1998-2007. Our results support the hypothesis that immigrant employees spur offshoring activities by firms through lower offshoring costs. Hiring one additional foreign-born worker can increase offshoring up to three percent on average, with skilled migrants having the strongest effects.

Keywords: Offshoring; migration; networks; trust; information; trade barriers

JEL-codes: D21; D83; F14; F22; F23

Language: English

40 pages, First version: December 21, 2016. Revised: February 1, 2022. Earlier revisions: February 1, 2022, February 1, 2022.

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