Does Offshoring Pay? Firm-Level Evidence from Japan
University of Nottingham Research Paper No. 2007/14
40 Pages Posted: 14 Mar 2007
There are 2 versions of this paper
Does Offshoring Pay? Firm-Level Evidence from Japan
Does Offshoring Pay? Firm-Level Evidence from Japan
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: Suggested Citation
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