Trade Costs and Modes of Reshoring : Evidence from Firm-Level Data

We propose a theoretical framework to empirically investigate the relationship between international trade costs and reshoring entry mode. In our model, there are two types of reshoring strategy: domestic backward vertical integration (DBVI) or domestic outsourcing (DO). The relative prevalence of DO depends negatively on international trade costs. Using firm level panel data of Korea, we find supportive evidence of reshoring patterns. In the manufacturing sectors, the number of domestic affiliates increased as the FDI-trend declined. During the same period, we confirm a negative relationship between DO and the distance to the host country of FDI in those sectors.