Working Paper: CEPR ID: DP6743
Authors: Giorgio Barba Navaretti; Giuseppe Bertola; Alessandro Sembenelli
Abstract: We propose and solve a simple model of firm-level decisions to offshore production stages of lower skill intensity than that of activities that remain in the domestic location. In theory, offshoring is optimal only for the more productive among heterogeneous firms if it entails a fixed cost. In a large sample of Italian firms, offshoring - especially of intermediate production stages - is indeed more prevalent among firms that are larger and more productive, and is predicted by arguably relevant firm-level characteristics. We also document that offshoring decreases the share of unskilled employment in domestic production facilities as well as firms? propensity to employ immigrant workers, and we discuss the possible determinants and policy implication of the latter finding.
Keywords: Foreign Direct Investment; Migration; Outsourcing; Skilled Labour
JEL Codes: F2; J61
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| firm productivity and size (L25) | offshoring (F23) |
| offshoring (F23) | share of unskilled employment in domestic production facilities (F66) |
| offshoring (F23) | propensity of firms to hire immigrant workers (J68) |