Offshore-sourcing strategies and the puzzle of productivity: a micro-level analysis

The purpose of this paper is to assess whether offshoring strategies are able to substantially enhance firms’ international competitiveness in terms of productivity, innovativeness and skill composition for a panel of Italian manufacturing firms.

A set of hypotheses derived from the extant literature is tested on data from balance sheets and qualitative surveys of about 4,000 Italian firms. The methodology used is a propensity score matching estimator and difference in differences method that allowed the authors to detect the causal effect of the offshoring status of the firms on some performance measures.

Results demonstrate that offshoring increases the propensity to innovate and the skill ratio of workers but does not show a significant association with productivity growth. The estimates are robust in all the specifications.

The results are applicable to Italian firms. The magnitude and timing of the effects may vary across firms and countries.

This paper contributes to the empirical literature on offshoring by exploring its impact on a variety of firms’ performance measures by using matching techniques that allow us to investigate more in depth the causality link of the relationship and to control for the self-selection effect (more productive firms self-select to offshore).