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Does Offshoring Production Reduce Innovation: Firm-Level Evidence from Taiwan

Author

Listed:
  • Lee G. Branstetter
  • Jong-Rong Chen
  • Britta Glennon
  • Nikolas Zolas

Abstract

Does the offshoring of production degrade or enhance the innovative capabilities of manufacturing firms? We contribute to this debate by exploiting a policy shock that differentially affected the ability of Taiwanese firms to offshore some products to China. We find causal evidence that offshoring impacts both the level and nature of innovation. In the technologies directly related to product categories that could be offshored more easily after the policy shock, overall innovation levels decline and innovative effort shifts away from product innovation and towards process innovation. However, we also find evidence of a second-order positive effect of offshoring on the levels of innovation—particularly product innovation—in other parts of the firm’s portfolio. These results are consistent with the notion that offshoring production induces a complex reallocation of innovation effort within the firm, both across and within technology categories. Our paper examines this reallocation in the context of Taiwanese electronics firms, and introduces new methods that could be used to study post-offshoring reallocations of innovative effort in other contexts.

Suggested Citation

  • Lee G. Branstetter & Jong-Rong Chen & Britta Glennon & Nikolas Zolas, 2021. "Does Offshoring Production Reduce Innovation: Firm-Level Evidence from Taiwan," NBER Working Papers 29117, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:29117
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    Cited by:

    1. Ito, Keiko & Ikeuchi, Kenta & Criscuolo, Chiara & Timmis, Jonathan & Bergeaud, Antonin, 2023. "Global value chains and domestic innovation," Research Policy, Elsevier, vol. 52(3).
    2. Robin Kaiji Gong & Yao Amber Li & Kalina Manova & Stephen Teng Sun, 2023. "Tickets to the global market: First US patent awards and Chinese firm exports," CEP Discussion Papers dp1962, Centre for Economic Performance, LSE.

    More about this item

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • F6 - International Economics - - Economic Impacts of Globalization
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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