Offshoring Bias in Productivity Estimates: Evidence from Japanese customs data

This study examines the extent to which imported intermediate inputs lead to biased estimates of firm-level total factor productivity (TFP) growth, a phenomenon referred to as “offshoring bias.†To this end, we construct a novel firm-level dataset by linking the Japanese customs data with the financial information. We newly develop firm-specific import deflators at the granular Harmonized System 9-digit product level and use them to deflate import values. Comparing TFP estimates based on this approach with those based on commonly used industry-level deflators reveals that the conventional method tends to overestimate TFP growth. Moreover, our regression results indicate that the offshoring bias is more pronounced among firms with higher import shares. This suggests that conventional TFP estimation methods may systematically overestimate productivity growth for firms that rely to a greater extent on imported intermediate inputs.