Institutions and O¤shoring Decision

Several papers show that the choice to establish an FDI may be a¤ected by the institutional environment of the receiving country. Property rights theory suggests that contract enforcement matters di¤erentially across sectors. The novelty of this paper is to test whether institutions matter di¤erentially across di¤erent sectors in FDI decision. Using data on U.S. Direct Investment Abroad, I \u85nd that institutional characteristics of the country and the industry positively a¤ect the volume of o¤shoring between U.S. companies and their a ¢ liates. This depends also on the type of relationship between parent company and foreign a ¢ liate. The suggested argument is stronger for the intermediate products, while the evidence is weak for products ready for sale