Does ICT Investment Spur or Hamper Offshoring? Empirical Evidence from Microdata

Abstract

We provide evidence on the effect of ICT investment on the propensity to offshore for a sample of Italian manufacturing firms. To deal with the endogeneity of ICT investment we adopt an innovative identification strategy based on the availability of local broad band facilities. Contrary to previous literature focusing on services, we find a negative effect of ICT on offshoring. Furthermore, when splitting the sample according to the technological level, the effect is negative and significant only in the sub-sample of low-tech firms. This suggests that ICT capital substitutes for foreign workers in performing routine tasks in low-tech industries.

Keywords: ICT Investment, offshoring, maximum likelihood system estimation

JEL Classification: C34, C35, F20, L23