Regional production networks, service offshoring, and productivity in East Asia

Using the Asian International Input-Output table (1990, 1995, and 2000), this paper explores regional production networks and offshoring of material and service inputs in East Asia. In process of doing so, the offshoring is directly measured from the Table which is not used in the previous literature on this issue. It turns out that East Asian countries source the significant shares of inputs within East Asia. Besides material offshoring, service offshoring in East Asia becomes more and more common in the era of globalization. We also examine how this fast growing offshoring affects productivity. Our econometric results show that offshoring has a significantly positive impact on total factor productivity in East Asia. Service offshoring, in particular, plays a more significant role than material offshoring. Further, service offshoring from advanced countries, such as Japan and the United States, has a stronger impact than other countries.