Are US Multinationals Making Rational Offshoring Decisions? A Gravity Model Approach

Abstract

The development of ICT technology and infrastructure has intensified the process of globalisation in developing countries. Many developing countries provide attractive opportunities for multinationals (MNCs) in terms of cost advantages, economies of scale and multi-plant economies. Developing countries not only provide large talent pools of young workers at lower costs but they provide opportunities in terms of growing product markets. Given the extensive financial resources and technical know-how of MNCs and other positive effects on the host economy like employment and productivity growth, many developing countries compete to have these firms locate to them by offering a favourable business environment, opening up their economies to foreign investment and setting low corporate tax rates.