Is Offshoring Beneficial or Detrimental to Innovation in Developed Countries?

Ursula Fritsch

VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy from Verein für Socialpolitik / German Economic Association

Abstract: This paper empirically investigates the effects of offshoring on innovation in a sample of 18 developed countries. Offshoring of services relates positively to innovation whereas offshoring of manufacturing depicts a negative relation with innovation. Solely offshoring manufacturing to high-income countries is found to be detrimental to domestic innovation, but not offshoring of manufacturing to emerging countries. These results are robust to an instrumental variables approach. Labor market dynamics can mitigate or even reverse these negative effects of offshoring of manufacturing if skill upgrading takes place simultaneously. This paper documents that innovation effects differ from the positive productivity effects found in earlier research and suggests that policy makers should take these different effects into account when designing a regulatory framework for further trade integration.

JEL-codes: F14 F16 O30 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-eff, nep-ino, nep-int, nep-sbm and nep-tid
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc15:112973

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