Does Offshoring Pay? Firm-Level Evidence from Japan

University of Nottingham Research Paper No. 2007/14

40 Pages Posted: 14 Mar 2007

See all articles by Alexander Hijzen

Alexander Hijzen

Organization for Economic Co-Operation and Development (OECD)

Tomohiko Inui

Nihon University - College of Economics

Yasuyuki Todo

Waseda University

Multiple version iconThere are 2 versions of this paper

Date Written: 2007

Abstract

This paper explores the impact of offshoring, or contracting out of business activities to foreign providers, on firm productivity, using Japanese firm-level data for the period 1994-2000. We find that offshoring has generally a positive effect on productivity growth. This effect is robust to controlling for the possible endogeneity of offshoring with respect to unobserved productivity shocks. Our preferred specification suggests that a one percent increase in offshoring intensity raises productivity growth by 0.17 percent. For the average offshoring firm this implies a 1.8 percent increase in annual productivity growth. These results do not appear to depend much on either the level of technological sophistication of a firms' industry or a firms' international orientation. However, we find that the scope for productivity improvements from offshoring depends negatively on the initial level of productivity of the firm.

Keywords: Offshoring, International insourcing, Domestic sourcing, TFP

JEL Classification: F14, L23

Suggested Citation

Hijzen, Alexander and Inui, Tomohiko and Todo, Yasuyuki, Does Offshoring Pay? Firm-Level Evidence from Japan (2007). University of Nottingham Research Paper No. 2007/14, Available at SSRN: https://ssrn.com/abstract=970607 or http://dx.doi.org/10.2139/ssrn.970607

Alexander Hijzen (Contact Author)

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

Tomohiko Inui

Nihon University - College of Economics ( email )

Tokyo
Japan

Yasuyuki Todo

Waseda University ( email )

1-104 Totsukamachi, Shinjuku-ku
tokyo, 169-8050
Japan

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