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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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    File URL: https://www.ifw-members.ifw-kiel.de/publications/offshoring-domestic-outsourcing-and-productivity-evidence-for-a-number-of-european-countries/KWP%201786.pdf
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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. 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.
    2. Görg, Holger & Hanley, Aoife, 2009. "Services outsourcing and innovation: An empirical investigation," CEPR Discussion Papers 7390, C.E.P.R. Discussion Papers.
    3. Pol Antràs & Elhanan Helpman, 2003. "Global Sourcing," NBER Working Papers 10082, National Bureau of Economic Research, Inc.
    4. Munch, Jakob Roland & Skaksen, Jan Rose, 2006. "Specialization, Outsourcing and Wages," Working Papers 19-2005, Copenhagen Business School, Department of Economics.
    5. Wilhelm Kohler & Jens Wrona, 2010. "Offshoring Tasks, yet Creating Jobs?," CESifo Working Paper Series 3019, CESifo Group Munich.
    6. Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, vol. 54(1), pages 75-96, June.
    7. Hartmut Egger & Peter Egger, . "International Outsourcing and the Productivity of Low-skilled Labour in the EU," WIFO Working Papers 152, WIFO.
    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. Hijzen, Alexander & Görg, Holger & Hine, Robert C., 2004. "International Outsourcing and the Skill Structure of Labour Demand in the United Kingdom," IZA Discussion Papers 1249, Institute for the Study of Labor (IZA).
    10. 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).
    11. 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.
    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. 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.
    15. Karsten Bjerring Olsen, 2006. "Productivity Impacts of Offshoring and Outsourcing: A Review," OECD Science, Technology and Industry Working Papers 2006/1, OECD Publishing.
    16. Alan S. Blinder, 2007. "How Many U.S. Jobs Might Be Offshorable?," Working Papers 60, Princeton University, Department of Economics, Center for Economic Policy Studies..
    17. 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.
    18. Mary Amiti & Shang-Jin Wei, 2004. "Fear of Service Outsourcing: Is It Justified?," NBER Working Papers 10808, National Bureau of Economic Research, Inc.
    19. 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.
    20. 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.
    21. Glass, Amy Jocelyn & Saggi, Kamal, 2001. "Innovation and wage effects of international outsourcing," European Economic Review, Elsevier, vol. 45(1), pages 67-86, January.
    22. 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.
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