Returning Home: Explaining the Location Choice of US Firms' Reshoring Projects

• In Event: Geopolitical Risks and Supply Chain Challenges

Abstract

Recent geopolitical and economic tensions, pandemics, and wars have increased the attraction of calls by states to relocate production capabilities to the home country. To what extent is the backshoring of manufacturing activities taking place in the United States? What explains the siting choice of the backshored firms? This paper addresses these questions through an analysis of publicly reported backshoring decisions of American firms during the last two decades. Specifically, we argue that firms need to weigh the labor costs offered by the potential reshored location against the need to demonstrate to customers, suppliers, and other stakeholders their willingness to uphold key principles of corporate social responsibility by engaging in rigorous labor rights protection. Consequently, firms will be more likely to relocate production to jurisdictions that offer both a higher level of legal protection and enforcement of labor standards as a way to signal their commitment to the protection of workers’ rights. We test the above hypothesis by assessing the impact of both U.S. states’ adoption of the right-to-work law and penalty assessments resulting from violations of Occupational Safety and Health standards on firms’ location preferences. Our analysis contributes to a better understanding of how pull factors in firms’ home country may influence their relocation decisions.

Authors

• Ka Zeng, University of Arkansas, Fayetteville

• Jialu Li, Harvard University