Executive summary
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Imports of intermediate materials (material offshoring) are an important facet of the production process in Western countries. As a result of a lack of data on imported intermediates by industry, almost all major studies on offshoring have relied on a proxy measure that assumes an industry’s import intensity of an input commodity is similar to that for the economy as a whole. This is referred to as the proportionality-based measure of offshoring.
Recent advances in administrative trade data permit the calculation of more direct industry-specific measures of imports. However, these measures capture the agent that engages in importation, who may be an intermediary rather than a final user of the import. More importantly, the importer may be assigned to a different industry than the user. This study reports on these more direct measures of industry imports using Canadian micro data on firm imports. It further proposes a hybrid method that supplements the direct-import approach with a modified proportionality input approach, which is used to re-allocate surplus imports purchased by intermediary industries to other input-using industries. Estimates from these alternative approaches are then compared to estimates derived from a survey that asked manufacturing firms for information on import intensity as part of a more general investigation of innovation.
This study finds that:
- There are large industry differences between the proportionality approach and the direct-import approach at the industry level. In particular, material imports in the Wholesale, Retail, and Finance, Insurance, and Real Estate (FIRE) (head offices) industries are well above their input use when the direct approach is used. These industries probably serve as intermediaries for users in other industries.
- Neither the proportionality approach nor the direct-import approach yield measures that approximate those from the survey across all industries. The proportionality approach generates a good proxy of offshoring for non-durables industries, but yields an overestimate for durables industries. By contrast, the direct-import approach generates a good proxy of offshoring for durables industries, but yields an underestimate for non-durables industries.
- The hybrid method improves measures yielded by the direct-import approach, in the sense that measures move closer to the survey estimates. In particular, when the fact that some commodities imported by intermediaries are not utilized as intermediates is taken into account, the hybrid method yields estimates that are better proxies than all other alternatives for the manufacturing sector in the sense that they more closely approximate the estimates derived from the survey. When actual data on imported-input use by industry are lacking, the hybrid method, which employs both input and import information, may reduce the potential bias that either approach (proportionality input approach and direct-import approach) generates.
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