Offshoring and the dynamics of employment, production, and imports: Evidence from the German International Sourcing Survey

Abstract

AbstractThis paper analyses the effect of offshoring on firm outcomes, using data from Germany's International Sourcing Survey (ISS) 2017 linked to other firm‐level data. We use a direct, survey‐based measure of offshoring on the extensive margin, namely whether a firm has relocated business functions abroad that were previously performed domestically within the firm. The analysis proceeds in two parts. First, difference‐in‐differences propensity score matching estimates reveal a negative effect of offshoring on domestic employment and production. However, most of this effect is not because the offshoring firms shrink, but because they do not grow as fast as the non‐offshoring firms. We further decompose the underlying employment dynamics using direct survey evidence on how many jobs the firms destroyed/created due to offshoring. Second, we analyse changes in the mix of import goods. Offshoring firms increase the share of ‘produced goods imports’, that is goods which are both imported and produced domestically by the firm. In contrast, offshoring firms do not increase the share of intermediate goods imports (a commonly used proxy for offshoring), as defined by the BEC Rev. 5 classification.