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Service Offshoring and Productivity: Evidence from the US


  • We would like to thank John Romalis, Caroline Freund, Gordon Hanson, Simon Johnson, Jozef Konings, Aart Kraay, Anna Maria Mayda, Christopher Pissarides, Raghu Rajan, Tony Venables, and seminar participants at the IMF, Georgetown University, the US International Trade Commission and the EIIE conference in Lubljana, Slovenia 2005, for helpful comments. We thank Yuanyuan Chen and Jungjin Lee for excellent research assistance. The views expressed in this paper are those of the authors and do not necessarily represent those of the Federal Reserve Bank of New York and the Federal Reserve System.


The practice of sourcing service inputs from overseas suppliers has been growing in response to new technologies that have made it possible to trade in some business and computing services that were previously considered non-tradable. This paper estimates the effects of offshoring on productivity in US manufacturing industries between 1992 and 2000. It finds that service offshoring has a significant positive effect on productivity in the United States, accounting for around 10 per cent of labour productivity growth during this period. Offshoring material inputs also have a positive effect on productivity, but the magnitude is smaller accounting for approximately 5 per cent of productivity growth.