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Productivity Gains and Spillovers from Offshoring

Author

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  • Michel, Bernhard

    () (Federal Planning Bureau, Belgium)

  • Rycx, Francois

    () (Free University of Brussels)

Abstract

Offshoring is generally believed to be productivity-enhancing and this belief is underpinned by economic theory. This article contributes to the growing literature that tests empirically whether offshoring does indeed help to improve productivity. Estimating the impact of materials and business services offshoring on productivity growth with industry-level data for Belgium over the period 1995-2004, we examine this issue separately for manufacturing and market services. The results show that there is no productivity effect of materials offshoring, while business services offshoring leads to productivity gains in manufacturing. In addition, this is the first article to investigate the possibility of spillovers from offshoring. Productivity gains from offshoring in one industry may feed through to other industries that purchase its output for intermediate use if, due to offshoring, the user value exceeds the price of the output. There is only scarce evidence of positive spillovers from materials offshoring in manufacturing in the data, which suggests that most firms effectively manage to internalise all efficiency gains from offshoring.

Suggested Citation

  • Michel, Bernhard & Rycx, Francois, 2011. "Productivity Gains and Spillovers from Offshoring," IZA Discussion Papers 5768, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp5768
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    1. Egger, Peter & Pfaffermayr, Michael & Wolfmayr-Schnitzer, Yvonne, 2001. "The international fragmentation of Austrian manufacturing: The effects of outsourcing on productivity and wages," The North American Journal of Economics and Finance, Elsevier, vol. 12(3), pages 257-272, November.
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    3. Rosario Crinò, 2008. "Service offshoring and productivity in Western Europe," Economics Bulletin, AccessEcon, vol. 6(35), pages 1-8.
    4. Calista Cheung & James Rossiter & Yi Zheng, 2008. "Offshoring and Its Effects on the Labour Market and Productivity: A Survey of Recent Literature," Bank of Canada Review, Bank of Canada, vol. 2008(Autumn), pages 17-30.
    5. Havranek, Tomas & Irsova, Zuzana, 2011. "Estimating vertical spillovers from FDI: Why results vary and what the true effect is," Journal of International Economics, Elsevier, vol. 85(2), pages 234-244.
    6. Yasuyuki Todo & Weiying Zhang & Lei‐An Zhou, 2011. "Intra‐industry Knowledge Spillovers from Foreign Direct Investment in Research and Development: Evidence from China's “Silicon Valley”," Review of Development Economics, Wiley Blackwell, vol. 15(3), pages 569-585, August.
    7. Keiko Ito & Kiyoyasu Tanaka, 2012. "Does Material and Service Offshoring Improve Domestic Productivity? Evidence from Japanese Manufacturing Industries," World Scientific Book Chapters,in: Quantitative Analysis Of Newly Evolving Patterns Of International Trade Fragmentation, Offshoring of Activities, and Vertical Intra-Industry Trade, chapter 2, pages 49-99 World Scientific Publishing Co. Pte. Ltd..
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    Cited by:

    1. Bruno Merlevede & Angelos Theodorakopoulos, 2016. "Productivity effects from inter-industry offshoring and inshoring: Firm-level evidence from Belgium," FIW Working Paper series 165, FIW.
    2. repec:bla:worlde:v:39:y:2016:i:12:p:2025-2045 is not listed on IDEAS
    3. Aleksandra Parteka & Joanna Wolszczak-Derlacz, 2015. "Integrated sectors - diversified earnings: the (missing) impact of offshoring on wages and wage convergence in the EU27," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 13(3), pages 325-350, September.
    4. Johannes Pöschl & Neil Foster-McGregor & Robert Stehrer, 2016. "International R&D Spillovers and Business Service Innovation," The World Economy, Wiley Blackwell, vol. 39(12), pages 2025-2045, December.
    5. Mariotti, Sergio & Nicolini, Marcella & Piscitello, Lucia, 2013. "Vertical linkages between foreign MNEs in service sectors and local manufacturing firms," Structural Change and Economic Dynamics, Elsevier, vol. 25(C), pages 133-145.
    6. Bournakis, Ioannis & Vecchi, Michela & Venturini, Francesco, 2015. "Off-shoring, specialization and R&D," MPRA Paper 68382, University Library of Munich, Germany.
    7. Kummritz,Victor & Taglioni,Daria & Winkler,Deborah Elisabeth & Kummritz,Victor & Taglioni,Daria & Winkler,Deborah Elisabeth, 2017. "Economic upgrading through global value chain participation : which policies increase the value added gains ?," Policy Research Working Paper Series 8007, The World Bank.
    8. Deborah Winkler & Thomas Farole, 2015. "Global Value Chain Integration and Productivity," World Bank Other Operational Studies 23818, The World Bank.

    More about this item

    Keywords

    manufacturing and services; offshoring; productivity; spillovers; gmm;

    JEL classification:

    • F0 - International Economics - - General
    • O0 - Economic Development, Innovation, Technological Change, and Growth - - General

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