Does Offshoring Pay? Firm-Level Evidence from Japan

Author Name Alexander HIJZEN  (OECD and GEP, University of Nottingham) /INUI Tomohiko  (College of Economics, Nihon University) /TODO Yasuyuki  (School of International Politics, Economics and Business, Aoyama Gakuin University)
Creation Date/NO. March 2007 07-E-005
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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.

Published: Alexander Hijzen, Tomohiko Inui and Yasuyuki Todo, 2010. "Does Offshoring Pay? Firm-Level Evidence from Japan," Economic Inquiry, Vol. 48(4), pp. 880-895.