The Effects of Production Offshoring on R&D and Innovation in the Home Country

Abstract

This paper tests the assumption that offshoring of production activities leads to less innovation in the home country. The analysis is based on a dataset of more than 3000 manufacturing firms from seven European countries. We find that offshoring firms employ more people in R&D and design, introduce more frequently new products, and invest more frequently in advanced process technologies compared to non-offshoring firms. Concerns that offshoring may hurt innovation because of the lost links between production and product development are not supported by the evidence.

Keywords: offshoring, R&D, home country effects, investment, product innovation, process innovation

JEL Classification: F230, F610, O310, O330