Working Paper: NBER ID: w29117
Authors: Lee G. Branstetter; Jongrong Chen; Britta Glennon; Nikolas Zolas
Abstract: Does the offshoring of production degrade or enhance the innovative capabilities of manufacturing firms? We contribute to this debate by exploiting a policy shock that differentially affected the ability of Taiwanese firms to offshore some products to China. We find causal evidence that offshoring impacts both the level and nature of innovation. In the technologies directly related to product categories that could be offshored more easily after the policy shock, overall innovation levels decline and innovative effort shifts away from product innovation and towards process innovation. However, we also find evidence of a second-order positive effect of offshoring on the levels of innovation—particularly product innovation—in other parts of the firm’s portfolio. These results are consistent with the notion that offshoring production induces a complex reallocation of innovation effort within the firm, both across and within technology categories. Our paper examines this reallocation in the context of Taiwanese electronics firms, and introduces new methods that could be used to study post-offshoring reallocations of innovative effort in other contexts.
Keywords: offshoring; innovation; Taiwan; electronics; policy shock
JEL Codes: F23; F60; O34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| offshoring (F23) | quantity of patents in offshored product categories (L24) |
| offshoring (F23) | nature of innovation in offshored product categories (O36) |
| offshoring (F23) | innovation in non-offshored product categories (O36) |
| offshoring (F23) | reallocation of innovative efforts across technology categories (O30) |