What Do We Really Know about Offshoring? Industries and Countries in Global Production Sharing
43 Pages Posted: 7 Jun 2017
Date Written: January 2017
Theories of offshoring model how firms divide production stages across borders. Empirical work on the phenomenon has long been hampered by a paucity of cross-country data on specialization within industries. In standard trade sources, we observe flows of goods between countries at the product level, but not the specific tasks that countries perform in manufacturing these products. The literature has consequently developed an inventive arsenal of indirect measures of industry fragmentation. In this paper, I turn to data on trade in assembly services ― a labor-intensive task that typically occurs at the end of the production chain ― to document which industries and countries are engaged in this common form of global production sharing. Trade in assembly services is prominent in just a handful of sectors, including apparel, electronics, footwear, furniture, toys, and transportation equipment. Data for the United States ― prior to the post-1980 growth in trade with developing countries ― reveal that most offshoring industries are relatively intensive in the employment of very low-wage labor, exhibit relatively wide variation in the wages paid to their employees, and use capital relatively unintensively. These industries tend to be less likely to hire workers in occupations that are intensive in routine tasks. Offshoring thus appears to be most prominent in sectors for which firms have a strong incentive to divide production between high-wage and low-wage countries and in which the automation of routinized jobs offer few opportunities to reduce labor intensity. Countries that specialize in manufacturing tend to cycle through offshoring industries as they accumulate capital, starting out in apparel, footwear, and toys and later moving into electronics and electrical machinery. These industry dynamics are most pronounced in labor-abundant East Asia. They are not present in the resource-abundant countries that specialize in primary commodities.
Keywords: High-Wage Low-Wage Countries, Offshoring, United States, East Asia
JEL Classification: J30, J0
Suggested Citation: Suggested Citation