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Does Offshoring Pay? Firm-Level Evidence from Japan

  • Alexander HIJZEN
  • INUI Tomohiko
  • TODO Yasuyuki

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 Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 07005.

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Length: 33 pages
Date of creation: Mar 2007
Date of revision:
Handle: RePEc:eti:dpaper:07005
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