Off-shoring, specialization and R&D*

Bournakis, Ioannis and Vecchi, Michela and Venturini, Francesco (2015): Off-shoring, specialization and R&D*.

Abstract

This paper investigates whether off-shoring promotes technological specialization by reallocating resources towards high-tech industries and/or stimulating within industry R&D. Using data for the US, Japan and Europe, our results show that material off-shoring promotes high-tech specialization through input reallocation between sectors, while service off-shoring favours technologically advanced production by increasing within-industry productivity, mainly via its positive impact on R&D. Conversely, we find that the increasing fragmentation of core production tasks, captured by narrow off-shoring, has adverse effects on technological specialisation, which suggests that this type of off-shoring is mainly pursued for cost-reduction motives.

• Item Type: MPRA Paper
• Language: English
• Keywords: High-tech specialization, off-shoring, productivity, R&D, OECD industries
• Subjects: F - International Economics > F1 - Trade > F14 - Empirical Studies of Trade; F - International Economics > F6 - Economic Impacts of Globalization; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L16 - Industrial Organization and Macroeconomics: Industrial Structure and Structural Change ; Industrial Price Indices; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O30 - General

References

Aghion, P. Howitt, P., and Prantl, S. 2015. Patent rights, product market reforms, and innovation. Journal of Economic Growth, 20(3), pp. 223-262.

Amiti, M. and Wei, S., 2009. Service off-shoring and productivity: Evidence from the US. The World Economy, 32(2), pp. 203-220.

Ancarani, A., Di Mauro, C., Fratocchi, L., Orzes, G., and Sartor, M. 2015 Prior to reshoring: A duration analysis of foreign manufacturing ventures, International Journal of Production Economics, 169, pp. 141-155.

Baldwin, R. and Robert-Nicoud, F., 2014. Trade-in-goods and trade-in-tasks: An Integrating Framework. Journal of International Economics, 92(1), pp. 51-62.

Barba Navaretti, G. and Falzoni, A.M., 2004. Home country effects of foreign direct investments. In Barba Navaretti, G. and Venables, A. (eds.), Multinational firms in the world economy, 217-239.Princeton University Press.

Barro, R.J. and Lee, J., 2001. International data on educational attainment: updates and implications. Oxford Economic Papers, 53(3), pp. 541-563.

Barro, R.J. and Sala-i-Martin, X., 2003. Economic Growth, 2nd Edition, MIT Press.

Bartel, A., Lach, S., Sicherman, N., 2005. Outsourcing and technological change. NBER working paper n. 11158.

Bloom, N., Draca, M. and Van Reenen, J., 2015. Trade induced technical change? The impact of Chinese imports on innovation, IT and productivity. Review of Economic Studies, forthcoming, doi: 10.1093/restud/rdv039

Bourlès, R., Cette G., Lopez, J., Mairesse, J. And Nicoletti, G. 2013. Do Product Market Regulations In Upstream Sectors Curb Productivity Growth? Panel Data Evidence For OECD Countries, The Review of Economics and Statistics, 95(5), pp. 1750-1768.

Cadot, O. and Shakurova, Y., 2010. Endowments, Specialization, and Policy. Review of International Economics, 18, pp. 913-923.

Castellacci, F., and Natera, J.M. 2011. A new panel dataset for cross-country analyses of national systems, growth and development (CANA), Working Papers del Instituto Complutense de Estudios Internacionales 05-11

Caves, D.W., Christensen, L.R. and Diewert, W.E., 1982. The economic theory of index numbers and the measurement of input, output, and productivity. Econometrica, pp. 1393-1414.

Crinò, R., 2008. Service off-shoring and productivity in Western Europe. Economics Bulletin, 6(35), pp. 1-8.

Crinò, R., 2012. Service off-shoring and the skill composition of labour demand. Oxford Bulleting of Economics and Statistics, 74 (1), 20-57.

Dachs, B., Ebersberger, B., Kinkel, S., and Som, O. (2015) The effects of production offshoring on R&D and innovation in the home country. Economia e Politica Industriale, 42(1), pp. 9-31.

Daveri, F. and Jona-Lasinio, C., 2008. Off-shoring and productivity growth in the Italian manufacturing industries. CESifo Economic Studies, 54(3), pp. 414-450.

Deardorff, A.V. and Staiger, R.W., 1988. An interpretation of the factor content of trade. Journal of International Economics, 24(1), pp. 93-107.

Dixit, A. and Norman, V., 1980. Theory of international trade: A dual, general equilibrium approach. Cambridge University Press.

Elsby, M.W., Hobijn, B., Șahin, A. (2013). The decline of the U.S. labor share. Brookings Papers on Economic Activity

Farrell, D. and Agrawal, V., 2003. Off-shoring: is it a win-win game? McKinsey Global Institute.

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

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

Feenstra, R.C. and Hanson, G.H., 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), pp. 907-940.

Feenstra, R.C. and Hanson, G., 2001. Global production sharing and rising inequality: a survey of trade and wages, NBER Working Papers w8372.

Feenstra, R.C. and Hanson, G., 2003. Productivity measurement and the impact of trade and technology on wages: estimates for the U.S., 1972-1990, Working Papers 9717, University of California, Davis, Department of Economics.

Freund, C. and Weinhold, D., 2002. The Internet and international trade in services. American Economic Review,92(2), pp. 236-240.

Ginarte, J. C., and Park, W. G. 1997. Determinants of patent rights: A cross-national study. Research Policy, 26(3), pp. 283-301.

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

Glass, A. J., and Saggi, K. 2001. Innovation and wage effects of international outsourcing. European Economic Review 45, pp. 67–86.

Görg, H. and Hanley, A., 2011. Services outsourcing and innovation: an empirical investigation. Economic Inquiry, 49(2), pp. 321-333.

Griliches, Z., 1992. The Search for R&D Spillovers. The Scandinavian Journal of Economics, pp. S29-S47.

Grossman, G.M. and Helpman, E., 1991. Innovation and growth in the global economy. MIT Press: Cambridge, MA.

Grossman, G.M. and Rossi-Hansberg, E., 2008. Trading tasks: a simple theory of off-shoring. American Economic Review, 98(5), pp. 1978-1997.

Grossman, G.M. and Rossi-Hansberg, E., 2012. Task trade between similar countries, Econometrica, 80(2), pp. 593-629.

Gushina, A., 2006. Effects of globalization on labor's share in national income. IMF Working Paper 06/294.

Gwartney, J., Lauwson, R., 2014. Economic Freedom of the World Annual Report. The Fraser Institute.

Hall, R.E., 1989. Invariance properties of Solow's productivity residual (No. w3034). National Bureau of Economic Research.

Harrigan, J., 1995. Factor endowments and the international location of production: econometric evidence for the OECD, 1970–1985. Journal of International Economics, 39(1), pp. 123-141.

Harrigan, J., 1997. Technology, factor supplies, and international specialization: Estimating the neoclassical model. The American Economic Review, 87(4), pp. 475-494.

Harrigan, J., 1999. Estimation of cross-country differences in industry production functions. Journal of International Economics, 47(2), pp. 267-293.

Harrigan, J., and Zakrajšek, E. 2000. Factor supplies and specialization in the world economy, NBER Working Papers 7848.

Hijzen, A., Görg, H. and Hine, R.C., 2005. International outsourcing and the skill structure of labour demand in the United Kingdom. The Economic Journal, 115(506), pp. 860-878.

Hijzen, A., Inui, T. and Todo, Y., 2010. Does off-shoring pay? Firm-Level evidence from Japan. Economic Inquiry, 48(4), pp. 880-895.

Hutchinson, J., Persyn, D., 2012. Globalisation, concentration and footloose firms: in search of the main cause of the declining labour share. Review of World Economics, 148, pp.17-43.

Jensen, J.B., 2008. Trade in high-tech services. Journal of Industry, Competition and Trade, 8(3-4), pp. 181-197.

Jona-Lasinio, C. 2015 Service off-shoring and productivity growth in the European economies. Review of Economics and Institutions 6(2), Article 4.

Jones, R.W. and Marjit, S., 2001. The role of international fragmentation in the development process. American Economic Review, pp. 363-366.

Jones, R.W., and Kierzkowski, H. 1990. The role of services in production and international trade: A theoretical approach. in Ronald Jones and Anne Krueger, eds., The Political Economy of Trade.

Karpaty, P. and Tingvall, P.G., 2015. Offshoring and home country R&D. The World Economy, 38(4), pp.655-676.

Katz, L.F. and Murphy, K.M., 1992. Changes in relative wages, 1963–1987: Supply and demand factors. The Quarterly Journal of Economics, 107(1), pp. 35-78.

Kleibergen, F. and Paap, R., 2006. Generalized reduced rank tests using the singular value decomposition. Journal of Econometrics, 133(1), pp. 97-126.

Kohli, U., 1991. Technology, duality, and foreign trade: The GNP function approach to modeling imports and exports. Harvester Wheatsheaf.

Leamer, E.E., 1984. Sources of international comparative advantage: Theory and evidence. Cambridge, MA: MIT press.

Markusen, J.R. and Venables, A.J., 1999. Foreign direct investment as a catalyst for industrial development. European Economic Review, 43(2), pp. 335-356.

Martin, J. and Mejean, I., 2014. Low-wage country competition and the quality content of high-wage country exports. Journal of International Economics, 93(1), pp. 140-152.

Michel, B. and Rycx, F., 2014. Productivity gains and spillovers from off-shoring. Review of International Economics, 22(1), pp. 73-85.

Naghavi, A., and Ottaviano, G. 2009. Offshoring and product innovation, Economic Theory, 38(3), 517-532.

Noland, M., 1993. The impact of industrial policy on Japan's trade specialization. The Review of Economics and Statistics, pp. 241-248.

O’Grady, M.A., Eiras, A.I., Schaefer, B.D. and Dim, A. B., 2006. Index of economic freedom. Heritage Foundation.

O'Mahony, M. and Timmer, M.P., 2009. Output, input and productivity measures at the industry level: The EU Klems database. The Economic Journal, 119(538), pp. F374-F403.

Sterlacchini, A. and Venturini, F., 2011. R&D and productivity in high-tech manufacturing: a comparison between Italy and Spain. MPRA Paper 30048, University Library of Munich.

Thomson R, 2013. Measures of R&D Tax Incentives for OECD Countries, Review of Economics and Institutions, vol. 4(3).

Thurm, S., 2004. Tough Shift — Lesson in India: Not Every Job Translates Overseas. The New York Times, March 3.

Van Ark, B., Pilat, D., Jorgenson, D. and Lichtenberg, F.R., 1993. Productivity levels in Germany, Japan, and the United States: differences and causes. Brookings Papers on Economic Activity, Microeconomics, 1, pp. 1-69.

Wei , S.J., 2000. How taxing is corruption on international investors? The Review of Economics and Statistics, 82(1), pp. 1-11.

Wood, A., 1995. How trade hurt unskilled workers. Journal of Economic perspectives, 9, pp. 57-57.

Woodland, A.D., 1982. International trade and resource allocation. North-Holland, Amsterdam.

Yeaple, S., and Golub, S. S. 2007. International Productivity Differences, Infrastructure, and Comparative Advantage. Review of International Economics 15(2), pp. 223-242.