Offshoring and Firm Overlap: Welfare Effects with Non‐Sharp Selection into Offshoring

30 Pages Posted: 6 Jun 2020

See all articles by Stella Capuano

Stella Capuano

Institute for Employment Research (IAB), Nuremberg, Germany

Hartmut Egger

University of Bayreuth - Department of Economics

Hans‐Jörg Schmerer

Fern Universität in Hagen

Michael Koch

University of Bayreuth

Date Written: February 2020

Abstract

Using German establishment data, we provide evidence for selection of larger, more productive producers into offshoring. However, the selection is not sharp, and offshoring and nonoffshoring producers coexist over a wide range of the revenue distribution. To explain this overlap, we set up a model of offshoring, in which we decouple offshoring status from revenues through heterogeneity in two technology parameters. In an empirical analysis, we employ German establishment data to estimate key parameters of the model and show that disregarding the overlap has large quantitative effects. It lowers the estimated gains from offshoring by almost 50% and, at the same time, exaggerates the role of the extensive margin for explaining the evolution of German offshoring since the 1990s.

Suggested Citation

Capuano, Stella and Egger, Hartmut and Schmerer, Hans‐Jörg and Koch, Michael, Offshoring and Firm Overlap: Welfare Effects with Non‐Sharp Selection into Offshoring (February 2020). Review of International Economics, Vol. 28, Issue 1, pp. 138-167, 2020, Available at SSRN: https://ssrn.com/abstract=3619295 or http://dx.doi.org/10.1111/roie.12445

Stella Capuano (Contact Author)

Institute for Employment Research (IAB), Nuremberg, Germany ( email )

Regensburger Str. 104
Nuremberg, 90478
Germany

Hartmut Egger

University of Bayreuth - Department of Economics ( email )

Universitatsstr 30
Bayreuth, D-95447
Germany

Hans‐Jörg Schmerer

Fern Universität in Hagen

Universitätsstrasse 41
Feithstrathe 140
Hagen, 58084
Germany

Michael Koch

University of Bayreuth ( email )

Universitatsstr 30
Bayreuth, D-95447
Germany

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