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Domestic Employment Effects of Offshoring: Empirical Evidence from Finland

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  • Deschryvere, Matthias
  • Kotiranta, Annu
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    Abstract

    This study empirically explores whether the propensity to offshore affects the total domestic employment at the firm level. The analysis is based on a Finnish weighted sample of 652 firms and screens the effect of offshoring different kinds of tasks. Two main channels of offshoring tasks are taken into account : offshore outsourcing and in-house offshoring. The main conclusion is that offshoring can significantly affect the total domestic employment but that the significance and the direction of the effect depend on which kind of offshoring is involved. Our results offer evidence that in both the manufacturing and service sectors offshore outsourcing of services has a positive effect on employment. In addition it was found that the effect of R&D offshoring on the probability to anticipate an increase of total domestic employment depends on the offshoring channel. Offshore outsourcing of R&D has a positive effect on the anticipated domestic employment, whereas in-house offshoring of R&D has a negative effect. Specific for the manufacturing sector is that offshore outsourcing of production also has a negative significant effect. A final conclusion is that only in the service sector does in-house offshoring of services have a negative effect on the probability to anticipate an increase of domestic employment. By dissecting offshoring by tasks and channels the above empirical findings contribute to a better understanding of the aggregate effects of offshoring on domestic employment.

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    Bibliographic Info

    Paper provided by The Research Institute of the Finnish Economy in its series Discussion Papers with number 1166.

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    Length: 25 pages
    Date of creation: 2008
    Date of revision:
    Handle: RePEc:rif:dpaper:1166

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    Related research

    Keywords: globalization; internationalization; outsourcing; offshoring; job loss; domestic effects; home country effects;

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    References

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    1. Vanessa Strauss-Kahn, 2004. "The Role of Globalization in the Within-Industry Shift Away from Unskilled Workers in France," NBER Chapters, in: Challenges to Globalization: Analyzing the Economics, pages 209-234 National Bureau of Economic Research, Inc.
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    6. Cadarso, Maria Angeles & Gomez, Nuria & Lopez, Luis Antonio & Tobarra, Maria Angeles, 2008. "The EU enlargement and the impact of outsourcing on industrial employment in Spain, 1993-2003," Structural Change and Economic Dynamics, Elsevier, vol. 19(1), pages 95-108, March.
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    9. Ekholm, Karolina & Hakkala, Katariina, 2005. "The Effect of Offshoring on Labor Demand: Evidence from Sweden," Working Paper Series 654, Research Institute of Industrial Economics.
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    13. Alexander Hijzen & Paul Swaim, . "Does offshoring reduce industry employment?," Discussion Papers 07/24, University of Nottingham, GEP.
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    15. Glass, Amy Jocelyn & Saggi, Kamal, 2001. "Innovation and wage effects of international outsourcing," European Economic Review, Elsevier, vol. 45(1), pages 67-86, January.
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    18. Robert Huggins & Mehmet Demirbag & Violina Iankova Ratcheva, 2007. "Global Knowledge and R&D Foreign Direct Investment Flows: Recent Patterns in Asia Pacific, Europe, and North America," International Review of Applied Economics, Taylor & Francis Journals, vol. 21(3), pages 437-451.
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    20. Mary Amiti & Shang-Jin Wei, 2004. "Fear of Service Outsourcing," IMF Working Papers 04/186, International Monetary Fund.
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    Cited by:
    1. Wagner, Joachim, 2011. "Productivity and International Firm Activities: What Do We Know?," IZA Policy Papers 23, Institute for the Study of Labor (IZA).
    2. Karpaty, Patrik & Tingvall, Patrik Gustavsson, 2011. "Offshoring and Home Country R&D," Working Paper Series in Economics and Institutions of Innovation 254, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.

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