Offshoring and productivity (growth) in Dutch manufacturing and service industries: An empirical assessment

Abstract

Although many studies have looked at a direct relationship between offshoring and productivity(growth), the effect of competititon on the output market as an additional mechanism has been rarely adressed in empirical studies. Companies operate in an environment with different degrees of competition, which might be related to the amount of offshoring they carry out as well as their productivity performance. Two main results emerge. First, on the basis of a decompostion analysis, we find that for manufacturing sectors gains in output productivity growth were caused by faster growth in intermediate imports offsetting negative contribution of growth rates of labor. Secondly, our analysis suggests that offshoring of services have a positive impact on industrial TFP growth. These results are also confirmed for offshoring, under form of vertical specialization, of services and manufacturing on the TFP growthof service sectors. We considered various specifications of the empirical model. Finally, we find evidence that offshoring compresses competition. This can be explained by the fact that, given output prices, lower production costs lead to higher price cost margins.