Offshoring and Firm Overlap : Welfare Effects with Non-Sharp Selection into Offshoring

Title data

Capuano, Stella ; Egger, Hartmut ; Koch, Michael ; Schmerer, Hans-Jörg:
Offshoring and Firm Overlap : Welfare Effects with Non-Sharp Selection into Offshoring.
In: Review of International Economics. Vol. 28 (2020) Issue 1 . - pp. 138-167.
ISSN 1467-9396
DOI: https://doi.org/10.1111/roie.12445

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Abstract in another language

Using German establishment data, we provide evidence for selection of larger, more productive producers into offshoring. However, the selection is not sharp, and offshoring and non-offshoring producers coexist over a wide range of the revenue distribution. To explain this overlap, we set up a model of offshoring, in which we decouple offshoring status from revenues through heterogeneity in two technology parameters. In an empirical analysis, we employ German establishment data to estimate key parameters of the model and show that disregarding the overlap has large quantitative effects. It lowers the estimated gains from offshoring by almost 50 percent and, at the same time, exaggerates the role of the extensive margin for explaining the evolution of German offshoring over the last 25 years.