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Export Outsourcing and Foreign Direct Investment: Evidence from Taiwanese Exporting Firms

  • Bih Jane Liu
  • An-Chi Tung
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    Exporting and FDI have traditionally been two major firm-level responses to globalization. Export outsourcing (EO), a new strategy that gained in importance recently, has now become another alternative. This paper seeks to examine how firms choose between EO and outward FDI by looking into firm-level productivity differences. A special data set is constructed by consolidating two micro data sets of Taiwanese manufacturing firms. The paper contributes in four main ways. First, it provides a causality analysis of labor productivity and EO, whereas previous studies deal only with correlations. Second, it shows that EO can be interpreted as an indirect way of exporting. Third, it points out that outward FDI itself may not help with productivity if it is not linked with EO, which finding contradicts conventional wisdom. Finally, most evidences seem to imply that the intricate Taiwan-China interconnection is a significant factor that facilitates or contributes to all above-mentioned findings.

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    File URL: http://degit.sam.sdu.dk/papers/degit_10/C010_047.pdf
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    Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c010_047.

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    Length: 24 pages JEL Classification: F14, F23, L22, L23, D21
    Date of creation: Jun 2005
    Date of revision:
    Handle: RePEc:deg:conpap:c010_047
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    1. Pol Antràs & Elhanan Helpman, 2003. "Global Sourcing," NBER Working Papers 10082, National Bureau of Economic Research, Inc.
    2. Amy R. Hwang, 2003. "Exports, Returns to Scale, and Total Factor Productivity: The Case of Taiwanese Manufacturing Industries," Review of Development Economics, Wiley Blackwell, vol. 7(2), pages 204-216, 05.
    3. Fixler, Dennis J. & Siegel, Donald, 1999. "Outsourcing and productivity growth in services," Structural Change and Economic Dynamics, Elsevier, vol. 10(2), pages 177-194, June.
    4. Keith Head & John Ries, 2004. "Exporting and FDI as Alternative Strategies," Oxford Review of Economic Policy, Oxford University Press, vol. 20(3), pages 409-423, Autumn.
    5. Sourafel Girma & Holger Görg, 2004. "Outsourcing, Foreign Ownership, and Productivity: Evidence from UK Establishment-level Data," Review of International Economics, Wiley Blackwell, vol. 12(5), pages 817-832, November.
    6. repec:hrv:faseco:4784029 is not listed on IDEAS
    7. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
    8. Aw, B. -Y. & Hwang, A. R., 1995. "Productivity and the export market: A firm-level analysis," Journal of Development Economics, Elsevier, vol. 47(2), pages 313-332, August.
    9. David Greenaway, 2004. "The Assessment: Firm-level Adjustment to Globalization," Oxford Review of Economic Policy, Oxford University Press, vol. 20(3), pages 335-342, Autumn.
    10. David Greenaway & Richard Kneller, 2004. "Exporting and Productivity in the United Kingdom," Oxford Review of Economic Policy, Oxford University Press, vol. 20(3), pages 358-371, Autumn.
    11. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
    12. Eiichi Tomiura, 2005. "Foreign Outsourcing, Exporting, and FDI: A Productivity Comparison at the Firm Level," Discussion Paper Series 168, Research Institute for Economics & Business Administration, Kobe University.
    13. Chen, Tain-Jy, 1992. "Determinants of Taiwan's direct foreign investment : The case of a newly industrializing country," Journal of Development Economics, Elsevier, vol. 39(2), pages 397-407, October.
    14. David Hummels & Jun Ishii & Kei-Mu Yi, 1999. "The nature and growth of vertical specialization in world trade," Staff Reports 72, Federal Reserve Bank of New York.
    15. Sourafel Girma & Holger Görg & Eric Strobl, 2003. "Exports, International Investment, and Plant Performance: Evidence from a Non-Parametric Test," Discussion Papers of DIW Berlin 379, DIW Berlin, German Institute for Economic Research.
    16. Brainard, S Lael, 1997. "An Empirical Assessment of the Proximity-Concentration Trade-off between Multinational Sales and Trade," American Economic Review, American Economic Association, vol. 87(4), pages 520-44, September.
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