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Offshoring, Domestic Outsourcing, and Productivity: Evidence for a Number of European Countries

  • Tillmann Schwörer
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    The economic effects of offshoring have been subject to extensive empirical analysis in the past, but many studies have not accurately distinguished between offshoring, domestic outsourcing, and the substitution of domestic by foreign suppliers. In this study I provide stylized facts on offshoring in Europe between 1995 and 2008 taking into account this distinction. I show that service inputs have been offshored and domestically outsourced, whereas material inputs have been either offshored or moved from domestic to foreign suppliers. The strong overall decline in the share of internal production evokes the question whether this has led to productivity gains within firms. I address this question by combining industry-level data on offshoring and domestic outsourcing with a firm panel. I find that offshoring of non-core activities has led to productivity gains whereas offshoring of core activities and domestic outsourcing have had no such effects. The estimated productivity gains are in particular driven by offshoring to low-wage countries and by the gains of multinational firms

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    Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1786.

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    Length: 31 pages
    Date of creation: Jul 2012
    Date of revision:
    Handle: RePEc:kie:kieliw:1786
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    1. Alexander HIJZEN & INUI Tomohiko & TODO Yasuyuki, 2007. "Does Offshoring Pay? Firm-Level Evidence from Japan," Discussion papers 07005, Research Institute of Economy, Trade and Industry (RIETI).
    2. Holger Görg & Aoife Hanley, 2008. "Services Outsourcing and Innovation: An empirical investigation," Kiel Working Papers 1417, Kiel Institute for the World Economy.
    3. Antras, Pol & Helpman, Elhanan, 2004. "Global Sourcing," Scholarly Articles 3196327, Harvard University Department of Economics.
    4. Mary Amiti & Shang-Jin Wei, 2009. "Service Offshoring and Productivity: Evidence from the US," The World Economy, Wiley Blackwell, vol. 32(2), pages 203-220, 02.
    5. Hartmut Egger & Peter Egger, 2006. "International Outsourcing and the Productivity of Low-Skilled Labor in the EU," Economic Inquiry, Western Economic Association International, vol. 44(1), pages 98-108, January.
    6. Kohler, Wilhelm & Wrona, Jens, 2011. "Offshoring tasks, yet creating jobs?," University of Tuebingen Working Papers in Economics and Finance 12, University of Tuebingen, Faculty of Economics and Social Sciences.
    7. Alan S. Blinder, 2009. "How Many US Jobs Might be Offshorable?," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 10(2), pages 41-78, April.
    8. Kohler Wilhelm K & Smolka Marcel, 2011. "Sourcing Premia with Incomplete Contracts: Theory and Evidence," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-39, February.
    9. Mitra, Devashish & Ranjan, Priya, 2010. "Offshoring and unemployment: The role of search frictions labor mobility," Journal of International Economics, Elsevier, vol. 81(2), pages 219-229, July.
    10. Mary Amiti & Shang-Jin Wei, 2004. "Fear of Service Outsourcing: Is It Justified?," NBER Working Papers 10808, National Bureau of Economic Research, Inc.
    11. David L. 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.
    12. Robert C. Feenstra & J. Bradford Jensen, 2012. "Evaluating Estimates of Materials Offshoring from U.S. Manufacturing," NBER Working Papers 17916, National Bureau of Economic Research, Inc.
    13. repec:hrv:faseco:4784029 is not listed on IDEAS
    14. Alexander Hijzen & Holger Görg & Robert C. Hine, 2005. "International Outsourcing and the Skill Structure of Labour Demand in the United Kingdom," Economic Journal, Royal Economic Society, vol. 115(506), pages 860-878, October.
    15. Jakob Munch & Jan Skaksen, 2009. "Specialization, outsourcing and wages," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 145(1), pages 57-73, April.
    16. Davide, Castellani & De Benedictis, Luca & Horgos, Daniel, 2011. "Can we really trust offshoring indices?," Working Paper 114/2011, Helmut Schmidt University, Hamburg, revised 21 Jun 2011.
    17. Holger Görg & Aoife Hanley & Eric Strobl, 2008. "Productivity effects of international outsourcing: evidence from plant-level data," Canadian Journal of Economics, Canadian Economics Association, vol. 41(2), pages 670-688, May.
    18. Karsten Bjerring Olsen, 2006. "Productivity Impacts of Offshoring and Outsourcing: A Review," OECD Science, Technology and Industry Working Papers 2006/1, OECD Publishing.
    19. Geishecker, Ingo & Görg, Holger, 2007. "Winners and losers: A Micro-level Analysis of International Outsourcing and Wages," CEPR Discussion Papers 6484, C.E.P.R. Discussion Papers.
    20. Gorg, Holger & Hanley, Aoife, 2005. "International outsourcing and productivity: evidence from the Irish electronics industry," The North American Journal of Economics and Finance, Elsevier, vol. 16(2), pages 255-269, August.
    21. Deborah Winkler, William Milberg, 2009. "WP 2009-12 Errors from the “Proportionality Assumption” in the Measurement of Offshoring: Application to German Labor Demand," SCEPA working paper series. SCEPA's main areas of research are macroeconomic policy, inequality and poverty, and globalization. 2009-12, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    22. Glass, Amy Jocelyn & Saggi, Kamal, 2001. "Innovation and wage effects of international outsourcing," European Economic Review, Elsevier, vol. 45(1), pages 67-86, January.
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