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Does Offshoring Pay? Firm-Level Evidence From Japan

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  • Alexander Hijzen,
  • Tomohiko Inui,
  • Yasuyuki Todo

Abstract

This paper explores the impact of offshoring, or contracting out of business activities to foreign providers, on firm productivity, using Japanese firm-level data for the period 1994-2000. We find that offshoring has generally a positive effect on productivity growth. This effect is robust to controlling for the possible endogeneity of offshoring with respect to unobserved productivity shocks. Our preferred specification suggests that a one percent increase in offshoring intensity raises productivity growth by 0.17 percent. For the average offshoring firm this implies a 1.8 percent increase in annual productivity growth. These results do not appear to depend much on either the level of technological sophistication of a firms' industry or a firms' international orientation. However, we find that the scope for productivity improvements from offshoring depends negatively on the initial level of productivity of the firm.

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Paper provided by University of Nottingham, GEP in its series Discussion Papers with number 07/14.

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Handle: RePEc:not:notgep:07/14

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Keywords: offshoring; international insourcing; domestic sourcing; TFP;

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  7. Alexander Hijzen & Holger Görg & Robert C. Hine, 2004. "International Outsourcing and the Skill Structure of Labour Demand in the United Kingdom," Discussion Papers of DIW Berlin, DIW Berlin, German Institute for Economic Research 437, DIW Berlin, German Institute for Economic Research.
  8. Görg, Holger & Hanley, Aoife & Strobl, Eric, 2007. "Productivity Effects of International Outsourcing: Evidence from Plant Level Data," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6361, C.E.P.R. Discussion Papers.
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  14. David H. Good & M. Ishaq Nadiri & Robin C. Sickles, 1996. "Index Number and Factor Demand Approaches to the Estimation of Productivity," NBER Working Papers 5790, National Bureau of Economic Research, Inc.
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  16. Karsten Bjerring Olsen, 2006. "Productivity Impacts of Offshoring and Outsourcing: A Review," OECD Science, Technology and Industry Working Papers, OECD Publishing 2006/1, OECD Publishing.
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