Contracting Endowment And Service Offshoring

Previous literature indicates that service offshoring has a positive effect towards production of the receiving country. China is now undertaking service offshoring industry as one of the very important steps of economic reconstruction. With demographic dividend burning down, and labor cost climbing up, China need to find a new perspective to further develop service offshoring. Because of the particularity that service trade relies far more on contracting environment rather than trade of product, this thesis will highlight the relationship between contracting environment and service offshoring. It is demonstrated by the GHM model that improvement in the contracting environment of South country will have positive or negative effect on service offshoring. This is because of the offset of increasing relative labor cost. In order to clarify the effective direction of contracting environment, the thesis established a panel data econometrics model, regressing data from 38 major service offshoring countries. The result displays that a good contracting environment do have a positive effect on service offshoring, which means under the condition of incomplete contract, a good jurisdiction system will largely reduce contracting cost and improve productivity, drive both technical and managerial innovation and expand foreign trade. Human and physical capital also has influence on service offshoring, and the former one has a greater influence. A developed economy may have comparative advantage in intra-industry trade intensity, production growth and highly complex products. Besides, the thesis also analyzes the current development of contracting environment in China. From a global perspective, China ranks among the top economies in contracting enforcement, which can be developed as the new comparative advantage of China participating in foreign trade activities. Within the country, China improves the jurisdiction efficiency by reform. Yet there is still space for better work to apply technology and enable auto litigation. Litigation time and cost in China is relatively low within developing countries, but high in comparative economies. Regional variation in contract enforcement is high in China. Generally speaking, coastal areas have better contracting environment, comparing with inner lands. In the conclusion chapter, we put forward some practical suggestions to optimize opening up structure, with contracting environment as the new comparative advantage.