Does Firm Boundary Matter? The effect of offshoring on productivity of Japanese firms

Recently, great interest has been aroused in the examination of the impact of offshore sourcing, which has increased rapidly across the world and expanded to cover a variety of tasks. Theoretical studies have shown that offshore sourcing contributes to higher productivity. This paper aims to provide evidence of the effect of offshore sourcing on productivity, on the basis of original survey data of offshore sourcing of Japanese firms. The estimation results show that offshore in-sourcing within multinationals has a positive impact on productivity but there is a time-lag in the appearance of the impact. On the other hand, it is found that offshore outsourcing through arm’s-length contracting out did not appear to affect productivity despite the expectation that the reallocation of resources to more advanced production processes contributes to productivity.