The ripple effects of offshoring in the United States: Boosting local productivity and capital investment

Abstract

We investigate the offshoring effect on local productivity, physical and intellectual capital investment at the U.S. county level from 1999 to 2006. By using regression with fixed effects and instrumental variable to account for possible endogeneity, we find that offshoring can increase overall local productivity and capital investment. Through industry linkages, an increase in productivity and capital investment from offshoring enhances those increases in non-offshoring industries. Industries in both MSA (urban) and non-MSA (rural) counties receive benefits of productivity expansion and capital investment from offshoring. The increased capital investment from offshoring could be a channel of local productivity and capital investment expansion.