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Offshoring and Firm Performance: Self-Selection, Effects on Performance, or Both?

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  • Wagner, Joachim

    ()
    (Leuphana University Lüneburg)

Abstract

This paper uses unique new data for German manufacturing enterprises from matched regular surveys and a special purpose survey to investigate the causal effect of relocation of activities to a foreign country on various dimensions of firm performance. Enterprises that relocated activities abroad in the period 2001-03 for the first time are compared to firms that did not relocate activities abroad before 2006. The comparison is performed for both 2004 (to document differences between the two groups of firms after some of them started to relocate abroad) and for 2000 (when none of them did relocate abroad). It turns out that, compared to non-offshoring firms, firms that relocated activities were larger and more productive, and had a higher share of exports in total sales. All these differences existed in 2000, the year before some firms started to relocate, and this points to self-selection of "better" firms into offshoring. This finding is in line with results from recent theoretical models and with results from other countries. To investigate the causal effects of relocation across borders on firm performance, six different variants of a matching approach of firms that did and did not start to relocate abroad in 2001-03 were performed based on a propensity score estimated using firm characteristics in 2000 and the change in the performance variable between 1997 and 2000. The performance of both groups was compared for 2004-06 when some firms were relocating firms and the others were not. Broadly in line with hypotheses derived from the literature there is no evidence that offshoring has a negative causal impact on employment in offshoring firms. The effect is positive and large for productivity, and weak evidence for a positive effect on the wage per employee, the proxy variable for human capital intensity used, is found. Contrary to what is often argued, therefore, we find no evidence for a negative causal effect of offshoring on employment in Germany or on other core dimensions of firm performance.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4605.

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Length: 37 pages
Date of creation: Dec 2009
Date of revision:
Publication status: published in: Review of World Economics, 2011, 147 (2), 217-247
Handle: RePEc:iza:izadps:dp4605

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Keywords: offshoring; enterprise panel data; Germany;

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References

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Citations

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Cited by:
  1. Rasel, Fabienne, 2012. "Offshoring and ICT: Evidence for German manufacturing and service firms," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 12-087, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Huang, Shu-Chin, 2013. "Capital outflow and R&D investment in the parent firm," Research Policy, Elsevier, Elsevier, vol. 42(1), pages 245-260.
  3. Sebastian Petrick & Katrin Rehdanz & Ulrich J. Wagner, 2011. "Energy Use Patterns in German Industry: Evidence from Plant-level Data," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 231(3), pages 379-414, June.
  4. Davide, Castellani & De Benedictis, Luca & Horgos, Daniel, 2011. "Can we really trust offshoring indices?," Working Paper, Helmut Schmidt University, Hamburg 114/2011, Helmut Schmidt University, Hamburg, revised 21 Jun 2011.
  5. Keiko Ito & Ayumu Tanaka, 2014. "The Impact of Multinationals’ Overseas Expansion on Employment at Suppliers at Home: New Evidence from Firm-Level Transaction Relationship Data for Japan," Discussion papers, Graduate School of Economics Project Center, Kyoto University e-13-008, Graduate School of Economics Project Center, Kyoto University.
  6. Keiko Ito & Ayumu Tanaka, . "Expansion of Overeas Production and the Impact on Employment in Domestic Supporting Industries: An Empirical Analysis Based on Buyer-Supplier Transaction Relationships," Chapters, Economic Research Institute for ASEAN and East Asia (ERIA), Economic Research Institute for ASEAN and East Asia (ERIA).
  7. Pinuccia Calia & Maria Ferrante, 2013. "How do firms combine different internationalisation modes? A multivariate probit approach," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 149(4), pages 663-696, December.
  8. Joachim Wagner, 2012. "International trade and firm performance: a survey of empirical studies since 2006," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 148(2), pages 235-267, June.
  9. Carlo Altomonte & Tommaso Aquilante & Gábor Békés & Gianmarco I. P. Ottaviano, 2014. "Internationalization and Innovation of Firms: Evidence and Policy," CEP Special Papers, Centre for Economic Performance, LSE 032, Centre for Economic Performance, LSE.
  10. Chin Hee Hahn & Yong-Seok Choi & Sadayuki Takii & Dionisius Narjoko & Rafaelita M. Aldaba & Shandre M. Thangavelu & Archanun Kohpaiboon & Juthathip Jongwanich & Alfons Palangkaraya & Cassey Lee & Keik, . "Impact of Globalization on Labor Market," Books, Economic Research Institute for ASEAN and East Asia (ERIA), Economic Research Institute for ASEAN and East Asia (ERIA), number 2012-rpr-04 edited by Chine Hee HAHN & Dionisius Narjoko, August.
  11. João Amador & Sónia Cabral, 2014. "Global Value Chains: Surveying Drivers, Measures and Impacts," Working Papers, Banco de Portugal, Economics and Research Department w201403, Banco de Portugal, Economics and Research Department.
  12. Tillmann Schwörer, 2013. "Offshoring, domestic outsourcing and productivity: evidence for a number of European countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 149(1), pages 131-149, March.

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