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Delaying the timing of offshoring low-skilled tasks

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  • de Mello-Sampayo, Felipa
  • de Sousa-Vale, Sofia
  • Camões, Francisco

Abstract

This paper examines the impact of uncertainty on offshoring low-skilled tasks. The model shows that greater demand uncertainty adversely affects the expected profit and timing of offshoring. It is also shown that a home-country tax rate deduction increases the volatility of the expected profits, making offshoring appear to be more risky. One policy implication of our results is that, in order to delay relocation of MNE's production from the home country, a government should adopt tax rate deduction rather than a direct subsidy because the former is more economical and effective than the latter.

Suggested Citation

  • de Mello-Sampayo, Felipa & de Sousa-Vale, Sofia & Camões, Francisco, 2010. "Delaying the timing of offshoring low-skilled tasks," Economic Modelling, Elsevier, vol. 27(5), pages 951-958, September.
    • Handle: RePEc:eee:ecmode:v:27:y:2010:i:5:p:951-958
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    Cited by:

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    More about this item

    Keywords

    Offshoring Multinational enterprises Option-pricing model Fiscal policy;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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