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)
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.