Study: Industry productivity in the manufacturing sector: The role of offshoring, 2002 to 2006
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Manufacturing firms that engaged in offshoring, where some of their intermediate inputs are sourced abroad, were found to have higher labour productivity than those that did not. On average, the labour productivity of a firm that offshored part of their intermediate inputs was 6.8% higher than that of a similar firm that did not offshore part of its inputs.
A paper released today, "Industry Productivity in the Manufacturing Sector: The Role of Offshoring," explores the relationship between offshoring and a firm's productivity in Canada over the period from 2002 and 2006.
In this study, offshoring refers to goods imported directly by manufacturers, including both intra- and inter-firm transactions across international borders; goods imported through intermediaries as well as services are excluded due to data limitations.
Offshoring can increase productivity by allowing firms to specialize on core activities, by facilitating the adoption of more advanced technologies, through increasing exposure to international best practices, and by facilitating a better match between a firm's inputs and outputs.
In addition, firms with higher offshoring intensity (the percentage of intermediate inputs directly imported) had higher labour productivity, especially firms that offshored to locations other than the United States. Multivariate analysis confirmed that these results held even when firm characteristics, such as industry, nationality of ownership, exporter status, and being a multi-establishment firm, are taken into account. Statistical tests reveal that increases in offshoring intensity also led to higher levels of future productivity.
Note to readers
This paper uses a microdata base that links the Annual Survey of Manufactures and the Importer Register. Future research will focus on extending the study period and considering sectors outside of manufacturing.
The research paper "Industry Productivity in the Manufacturing Sector: The Role of Offshoring," part of the Economic Analysis Research Paper Series (11F0027M), is now available from the Browse by key resource module of our website under Publications.
Similar studies are also available in the Update on Economic Analysis module of our website.
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To enquire about the concepts, methods or data quality of this release, contact Lydia Couture (613-951-5394; firstname.lastname@example.org), Economic Analysis Division.