OFFSHORING AND PRODUCTIVITY: A MICRO-DATA ANALYSIS

Offshoring has become increasingly important for businesses, especially manufacturing firms, to compete in domestic and international markets. This paper empirically studies the association between offshoring, productivity, and plant characteristics by focusing on the geographical dimension of plants' business activities. Using data from Statistics Canada's Survey of Innovation 2005 and Annual Surveys of Manufacturers, we show that material offshoring is strongly associated with firms' outward-oriented business activities (including foreign operation, investing in foreign M&E, and exporting), even after controlling for geographic advantages and industry- and plant-specific effects. For R&D offshoring, we find that it is mainly associated with investment in foreign M&E. In addition, this paper shows that material offshoring is positively associated with productivity and that the association is significantly larger for material offshoring to Asia Pacific countries than for material offshoring to the U.S. and other locations.