Technological Knowledge and Offshore Outsourcing: Evidence from Japanese firm-level data

This paper empirically examines the effects of knowledge capital on offshore outsourcing choices based on original survey data of Japanese firms. The results of a multinomial logit model demonstrate that firms' offshoring is positively correlated with knowledge capital measured by their R&D activities or patenting, even after controlling for other firm characteristics including productivity, capital intensity, firm age, and export status. Further, knowledge-intensive firms are more inclined to choose foreign insourcing rather than outsourcing, suggesting that firms tend to internalize their technological knowledge in offshore sourcing.