Japan and her dealings with offshoring: An empirical analysis with aggregate data

Agnese, Pablo (2009): Japan and her dealings with offshoring: An empirical analysis with aggregate data.

Abstract

First moves towards a real understanding of the offshoring phenomenon date back to very recent times, with employment and productivity effects occupying much of the literature around the subject. In particular for Japan, the studies conducted so far focus on the disaggregate level and put the stress on the productivity side alone. Here I carry out both the analyses of the employment and productivity effects at the aggregate level of the industry, covering the years 1980-2005. Moreover, I consider all industries within the economy and take account of both materials and services offshoring. The results presented here suggest that we can expect a positive effect of services offshoring on employment, and a positive effect of materials offshoring on the growth rate of productivity.

• Item Type: MPRA Paper
• Language: English
• Keywords: offshoring; Japan; employment; productivity
• Subjects: F - International Economics > F1 - Trade > F16 - Trade and Labor Market Interactions; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Empirical Studies of Economic Growth ; Aggregate Productivity ; Cross-Country Output Convergence; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J23 - Labor Demand

References

Agnese, P. and H. Sala, 2008, The fading 1990s in Japan: Driving forces behind the unemployment upsurge, International Review of Economics and Finance, doi: 10.1016/j.iref.2008.09.005.

Ahearne, A., and N. Shinada, 2005, Zombie firms and economic stagnation in Japan, International Economics and Economic Policy, 2 (4), 363-381.

Ahn, S., and H. Moon, 2001, Large-N and Large-T Properties of Panel Data Estimators and the Hausman Test, mimeo.

Amiti, M. and S-J. Wei, 2005, Fear of service outsourcing: Is it justified?, Economic Policy 20 (42), 308-347.

Amiti, M. and S-J. Wei, 2006, Service offshoring, productivity, and employment: Evidence from the United States, CEPR Discussion Paper 5475.

Arellano, M., and S. Bond, S., 1991, Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations, Review of Economic Studies 58 (2), 277-297.

Arellano, M., and O. Bover, 1995, Another look at the instrumental variable estimation of error-components models, Journal of Econometrics, 68 (1), 29-51.

Arndt, S., 1997, Globalization and the Open Economy, North American Journal of Economics and Finance 8 (1), 71-79.

Arndt, S., 1998, Super-specialization and the gains from trade, Contemporary Economic Policy 16 (4), 480-485.

Arndt, S., 1999, Globalization and economic development, Journal of International Trade and Economic Development 8 (3), 309-318.

Arrow, K., Chenery, H., Minhas, B. and R. Solow, 1961, Capital-Labor Substitution and Economic Efficiency, Review of Economics and Statistics, 63 (3), 225-250.

Barro, R. and X. Sala-i-Martin, 2003, Economic Growth, The MIT Press.

Berman, E., Bound, J. and Z. Griliches, 1994, Changes in the Demand for Skilled Labor within U.S. Manufacturing: Evidence from the Annual Survey of Manufacturers, The Quarterly Journal of Economics 109 (2), 367-397.

Bond, S., 2002, Dynamic panel data models: a guide to micro data methods and practice, Cemmap Working Paper Series CWP09/02.

Caballero, R., Hoshi, T., and A. Kashyap, 2008, Zombie lending and depressed restructuring in Japan, The American Economic Review 98 (5), 1943-77.

Cadarso, M., Gó mez, N., López, L., and M. Tobarra, 2008, The EU enlargement and the impact of outsourcing on industrial employment in Spain, 1993--2003, Structural Change and Economic Dynamics, 19 (1), 95-108.

Campa, J. and L. Goldberg, 1997, The evolving external orientation of manufacturing industries: Evidence from four countries, Federal Reserve Bank of New York Economic Policy Review 4, 79--99. Canals, C., 2006, What explains the widening wage gap? Outsourcing vs. technology, La Caixa Working Paper Series 01/2006.

Crinò , R., 2007, Service offshoring and white-collar employment, CESifo Working Paper 2040.

Criscuolo, C. and M. Leaver, 2005, Offshore Outsourcing and Productivity, available at: www.oecd.org/dataoecd/55/23/35637436.pdf

Egger, H. and P. Egger, 2003, Outsourcing and skill-specific employment in a small economy: Austria after the fall of the Iron Curtain, Oxford Economic Papers 55 (4), 625-643.

Egger, H. and P. Egger, 2005, Labor market effects of outsourcing under industrial interdependence, International Review of Economics and Finance, 14 (3), 349-363.

Egger, P., Pfaffermayr, F., and A. Weber, 2003, Sectoral Adjustment of Employment: The Impact of Outsourcing and Trade at the Micro Level, Institute for Advanced Studies, Vienna, Economics Series, 145.

Ekholm, K. and K. Hakkala, 2006, The Effect of Offshoring on Labor Demand: Evidence from Sweden, The research institute of industrial economics, The Research Institute of Industrial Economics Working Paper 654.

Feenstra, R. and G. Hanson, 1996a, Foreign investment, outsourcing, and relative wages, in: R. Feenstra, G. Grossman and D. Irwin, eds., The political economy of trade policy: Papers in honor of Jagdish Bhagwati, MIT Press: Cambridge, MA, 89-127.

Feenstra, R. and G. Hanson, 1996b, Globalization, outsourcing, and wage inequality, The American Economic Review 86 (2), 240-245.

Feenstra, R. and G. Hanson, 1997, Foreign direct investment and relative wages: Evidence from Mexico's maquiladoras, Journal of International Economics 42 (3/4), 371-393.

Feenstra, R. and G. Hanson, 1999, The impact of outsourcing and high-technology capital on wages: Estimates for the United States, 1979-1990, The Quarterly Journal of Economics 114 (3), 907-940.

Feenstra, R. and G. Hanson, 2001, Global production sharing and rising inequality: A survey of trade and wages, NBER Working Paper 8372, forthcoming. In: K. Choi, & J. Harrigan, eds., Handbook of International Trade, Basil Blackwell: Malden.

Forrester Research, 2004, Near-term growth of offshoring accelerating, Cambridge, MA.

Fukao, M., 2003, The Major Cause of the Long Recession is the Lack of Demand, in: K. Iwata and T. Miyagawa (eds), What is the Real Cause of the Lost Decade, Toyo Keizai Shinpo Sha: Tokyo, 17--20.

Fukao, K. and H. Kwon, 2006, Why did Japan's TFP growth slow down in the lost decade? An empirical analysis based on firm-level data of manufacturing firms, The Japanese Economic Review 57 (2).

Fukao, K., Inui, T., Kawai, H. and T. Miyagawa, 2004, Sectoral Productivity and Economic Growth in Japan, 1970--98: An Empirical Analysis Based on the JIP Database, in: T. Ito and A. K. Rose (eds), Growth and Productivity in East Asia, National Bureau of Economic Research-East Asia Seminar on Economics, Vol. 13, University of Chicago Press: Chicago, 177--227.

Fukao, K., Hamagata, S., Inui, T., Ito, K., Kwon, H., Makino, T., Miyagawa, T., Nakanishi, Y. and J. Tokui, 2007, Estimation Procedures and TFP Analysis of the JIP Database 2006, RIETI Discussion Paper 07-E-003

Geishecker, I. and H. Görg, 2005, Do unskilled workers always lose from fragmentation?, North American Journal of Economics and Finance 16 (1), 81-92.

Girma, S. and H. Görg, 2004, Outsourcing, Foreign Ownership, and Productivity: Evidence from UK Establishment-level Data, Review of International Economics, 12 (5), 817-832.

Görg, H. and A. Hanley, 2005, Labour demand effects of international outsourcing: Evidence from plant-level data, International Review of Economics and Finance, 14 (3), 365-376.

Griliches, Z., 1996, The Discovery of the Residual: A Historical Note, Journal Economic Literature, 34 (3), 1324-30.

Hakkala, K., Heyman, F., and F. Sjöholm, 2007, Cross-Border Acquisitions, Multinationals and Wage Elasticities, IFN Working Paper 709.

Hamermesh, D., 1993, Labour Demand, Princeton University Press: Princeton, NJ.

Hattori, T. and H. Miyazaki, 2000, Measuring Technological Progress and Factor Analysis of Economic Growth in Japanese Industry, Denryoku Keizai Kenkyu, Vol. 44, 1--16.

Hayashi, F. and E. Prescott, 2002, The 1990s in Japan: A lost decade, Review of Economic Dynamics 5, 206-235.

Head, K. and J. Ries, 2002, Offshore production and skill upgrading by Japanese manufacturing firms, Journal of International Economics 58 (1), 81-105.

Hicks, J., 1939, Value and Capital: An inquiry into some fundamental principles of economic theory, Clarendon Press: Oxford.

Hijzen, A., Görg, H., and R. Hine, 2005, International outsourcing and the skill structure of labour demand in the United Kingdom, The Economic Journal, 115, 860-878.

Hijzen, A., Tomohiko, I. and Y. Todo, 2006, Does Offshoring Pay? Firm-Level Evidence from Japan, RIETI Discussion Paper 07-E-005.

Horgos, D., 2008, Labor market effects of international outsourcing: how measurement matters, International Review of Economics and Finance, forthcoming; doi: 10.1016/j.iref.2008.10.006.

Hsiao, C., 2003, Analysis of Panel Data, Cambridge University Press.

Hulten, C., 2001, Total factor productivity: a short biography, in: Hulten, Dean and Harper (eds.) 2001, Journal New Development in Productivity Analysis, University of Chicago Press for the National Bureau of Economic Research.

Hummels, D., Ishii, J. and K-M. Yi, 2001, The Nature and Growth of Vertical Specialization in World Trade, Journal of International Economics 54 (1), 75-96.

Ito, B., Tomiura, E. and R. Wakasugi, 2007, Dissecting Offshore Outsourcing and R&D: A Survey of Japanese Manufacturing Firms, RIETI Discussion Paper 07-E-060

JIP Database, 2006, 2008. RIETI, Hitotsubashi University, and ESRI, Japan.

Kee, H., 2004, Estimating Productivity When Primal and Dual TFP Accounting Fail: An Illustration Using Singapore's Industries, Topics in Economic Analysis and Policy, 4 (1).

Kirkegaard, J., 2007, Offshoring, outsourcing, and production relocation. Labor market effects in the OECD countries and developing Asia, IIE Working Paper 07-02.

Kobayashi, K., 2007, Payment uncertainty and the productivity slowdown, Macroeconomic Dynamics, 11 (2), 231-248.

Krugman, P., 1995, Growing World Trade: Causes and Consequences, Brookings Papers on Economic Activity 1.

Krugman, P., 2000, Technology, trade, and factor prices, Journal of International Economics 50 (1), 51-71.

Lawrence, R., Slaughter, M. and R. Hall, 1993, International Trade and American Wages in the 1980s: Giant Sucking Sound or Small Hiccup?, Brookings Papers on Economic Activity 1, 161-226.

Leamer, E., 1994, Trade wages and revolving door ideas, NBER Working Paper 4716.

Leamer, E., 1998, In Search of Stolper-Samuelson Linkages between International Trade and Lower Wages. In: Susan M. Collins (ed.), Imports, Exports, and the American Worker, Brookings Institution: Washington, DC, 141-203.

McKinsey Global Institute, 2003, Who wins in offshoring, The McKinsey Quarterly 4.

Miyagawa, T., 2003, The Lost Decade and Structural Change, in: K. Iwata and T. Miyagawa (eds), What is the Real Cause of the Lost Decade, Toyo Keizai Shinpo Sha: Tokyo, 39--61.

Miyagawa, T., Sakuragawa, Y. and M. Takizawa, 2006, Productivity and business cycles in Japan: evidence from Japanese industry data, The Japanese Economic Review 57 (2).

OECD, 2007, Offshoring and Employment. Trends and impacts.

Olsen, K., 2006, Productivity Impacts of Offshoring and Outsourcing: A Review, OECD STI Working Paper 2006/1.

Samuelson, P., 1947, Foundations of Economic Analysis, Harvard University Press: Cambridge, Mass.

Shephard, R., 1953, Theory of Cost and Production Functions, Princeton University Press: Princeton, NJ.

Siegel, D., and Z. Griliches, 1992, Purchased services, outsourcing, computers, and productivity in manufacturing, in Griliches, Z., Berndt, E.R., Bresnahan, T.F., Manser, M.E. (Eds), Output Measurement in the Service Sectors, National Bureau of Economic Research (NBER) Studies in Income and Wealth 56, The University of Chicago Press: Chicago, IL, 429-60.

Slaughter, M., 1995, Multinational Corporations, Outsourcing, and American Wage Divergence, NBER Working Paper 5253.

Slaughter, M., 2000, Production transfer within multinational enterprises and American wages, Journal of International Economics 50 (2), 449-472.

Strauss-Kahn, V., 2004, The role of globalization in the within-industry shift away from unskilled workers in France, in: R. Baldwin and A. Winters, eds., Challenges to Globalization, University of Chicago Press: Chicago.

Tomiura, E., 2005, Foreign outsourcing and firm-level characteristics: Evidence from Japanese manufacturers, Journal of the Japanese International Economics 19 (2), 255-271.

Van Beveren, I., 2007, Total factor productivity estimation: A practical review, LICOS Discussion Paper 182.

Wakita, S., 2006, The Lost Decade in the Japanese Labor Market: Labor's share and Okun's Law, Public Policy Review 2 (1), 77-96.

Webster, E., 2003, The Effects of Wages on Aggregate Employment: A Brief Summary of Empirical Studies, The Australian Economic Review 36 (1), 134-142.

Yoshikawa, H., 2003, Comment on Hayashi Paper: Too Much is as Bad as Too Little !?, in: K. Iwata and T. Miyagawa (eds), What is the Real Cause of the Lost Decade, Toyo Keizai Shinpo Sha: Tokyo, 21--24.

Yoshikawa, H., and K. Matsumoto, 2001, An introduction: The Japanese and the U.S. Economy in the 1990s, Financial Review 58, 1--17.

Zheng, S., 2005, Estimating Industry Level Multifactor Productivity: Methods and Experimental Results, ABS Working Paper (1351.055.004).