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Does ICT Investment Spur or Hamper Offshoring? Empirical Evidence from Microdata

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Author Info
Luigi Benfratello () (Department of Economics and Public Finance "G. Prato", University of Torino)
Tiziano Razzolini () (Department of Economics, University of Siena)
Alessandro Sembenelli () (Department of Economics and Public Finance "G. Prato", University of Torino)

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Abstract

In this paper we provide empirical evidence on the effect of ICT investment on the propensity to offshore for a large sample of Italian manufacturing firms. Contrary to previous literature focusing on the service sector, after taking into account the endogeneity of ICT investment in the offshoring decision equation we find a negative and significant effect of ICT on the propensity to offshore some stages of the production process. Furthermore this effect turns out not to depend on the type of ICT investment and applies both to hardware and software/telecommunication expenditures. A potential explanation for our finding is that ICT investments in manufacturing increase the complementarity of production processes within the firm, thereby reducing the incentive to offshore. Our results seem therefore to suggest that negative exogenous shocks to ICT prices–possibly induced by targeted policy programs aimed at the diffusion of ICT technologies–do not favor offshoring of manufacturing activities.

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File URL: http://web.econ.unito.it/prato/papers/n5.pdf
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Publisher Info
Paper provided by University of Torino, Department of Economics and Public Finance "G. Prato" in its series Working Papers with number 5.

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Length: 35 pages
Date of creation: Jun 2009
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Handle: RePEc:tur:wpaper:5

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Related research
Keywords: ICT Investment; Offshoring; Maximum Likelihood System Estimation;

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Find related papers by JEL classification:
C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models
C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models
F20 - International Economics - - International Factor Movements and International Business - - - General
L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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