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Service Offshoring, Productivity and Employment: Evidence from the US

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Amiti, Mary
Wei, Shang-Jin

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Abstract

The practice of sourcing service inputs from overseas suppliers has been growing in response to new technologies. This paper estimates the effects of offshoring on productivity in US manufacturing industries between 1992 and 2000, using instrumental variables estimation to address the potential endogeneity of offshoring. It finds that service offshoring has a significant positive effect on productivity in the US, accounting for around 11% of productivity growth during this period. Offshoring material inputs also has a positive effect on productivity, but the magnitude is smaller accounting for approximately 5% of productivity growth. There is a small negative effect of less than half a percent on employment when industries are finely disaggregated (450 manufacturing industries). However, this affect disappears at more aggregate industry level of 96 industries indicating that there is sufficient growth in demand in other industries within these broadly defined classifications to offset any negative effects.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5475.

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Date of creation: Jan 2006
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Handle: RePEc:cpr:ceprdp:5475

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Related research
Keywords: employment offshoring outsourcing productivity services

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Find related papers by JEL classification:
F1 - International Economics - - Trade
F2 - International Economics - - International Factor Movements and International Business

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  2. Deardorff, A.V., 1998. "Fragmentation Across Cones," Papers 98-14, Michigan - Center for Research on Economic & Social Theory.
  3. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Blackwell Publishing, vol. 58(2), pages 277-97, April. [Downloadable!] (restricted)
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  5. Cordella, Tito & Grilo, Isabel, 1998. "'Globalization' and Relocation in a Vertically Differentiated Industry," CEPR Discussion Papers 1863, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  6. Sourafel Girma & Holger Görg, 2004. "Outsourcing, Foreign Ownership, and Productivity: Evidence from UK Establishment-level Data," Review of International Economics, Blackwell Publishing, vol. 12(5), pages 817-832, November. [Downloadable!] (restricted)
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  7. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June. [Downloadable!] (restricted)
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  10. Hartmut Egger & Peter Egger, . "International Outsourcing and the Productivity of Low-skilled Labour in the EU," WIFO Working Papers 152, WIFO. [Downloadable!]
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  11. Ekholm, Karolina & Hakkala, Katariina, 2005. "The Effect of Offshoring on Labor Demand: Evidence from Sweden," Working Paper Series 654, Research Institute of Industrial Economics. [Downloadable!]
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  12. Griliches, Zvi & Hausman, Jerry A., 1986. "Errors in variables in panel data," Journal of Econometrics, Elsevier, vol. 31(1), pages 93-118, February. [Downloadable!] (restricted)
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  13. Deardorff, Alan V., 2001. "Fragmentation in simple trade models," The North American Journal of Economics and Finance, Elsevier, vol. 12(2), pages 121-137, July. [Downloadable!] (restricted)
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  14. Feenstra, Robert C & Hanson, Gordon H, 1996. "Globalization, Outsourcing, and Wage Inequality," American Economic Review, American Economic Association, vol. 86(2), pages 240-45, May. [Downloadable!] (restricted)
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  15. Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, vol. 54(1), pages 75-96, June. [Downloadable!] (restricted)
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  16. Caroline Freund & Diana Weinhold, 2002. "The Internet and International Trade in Services," American Economic Review, American Economic Association, vol. 92(2), pages 236-240, May. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Robert-Nicoud, Frédéric, 2006. "Off-Shoring of Business Services and Deindustrialization: Threat or Opportunity - and for Whom?," CEPR Discussion Papers 5617, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Nana Bourtchouladze, 2007. "Offshoring and Heterogeneous Firms: One Job Offshored, One Job Lost?," HEI Working Papers 28-2007, Economics Section, The Graduate Institute of International Studies, revised Dec 2007. [Downloadable!]
  3. Andersson, Linda & Karpaty, Patrik, 2007. "Offshoring and Relative Labor Demand in Swedish Firms," Working Papers 2007:5, Örebro University, Swedish Business School. [Downloadable!]
  4. Daniel Horgos, 2007. "Labor Market Effects of International Outsourcing : How Measurement Matters," SOEPpapers 58, DIW Berlin, The German Socio-Economic Panel (SOEP). [Downloadable!]
    Other versions:
  5. Mary Amiti & Shang-Jin Wei, 2006. "Service Offshoring and Productivity: Evidence from the United States," NBER Working Papers 11926, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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