Offshoring, Extent of the Shadow Economy and Productivity Effects. Evidence from Italian Manufacturing Firms
SERIES Working Paper No. 21
47 Pages Posted: 1 Jun 2011 Last revised: 7 Jun 2011
We examine whether offshoring firms outperform purely domestic firms – in terms of efficiency, innovativeness and skill composition – in the peculiar context of Italy, the G7 country with the largest shadow-economy share. We posit that manufacturing firms – to counter emerging economies’ competition – could either offshore production or enter the shadow economy. Using propensity-score-matching and difference-in-difference techniques we find that offshoring: (i) impacts negatively TFP; (ii) is robustly caused by labour cost relocation; (iii) raises skill ratios; (iv) has a modest negative effect on employment growth; (v) is less likely for firms localised in high-shadow-economy provinces.
Keywords: trade integration, offshoring, empirics of global sourcing, shadow economy
JEL Classification: F13, F21, O19, E26
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