International Outsourcing and Productivity Growth

This study investigates the impact of international outsourcing to low and high income countries on total factor productivity (TFP) growth based on manufacturing industry data for 14 OECD countries for the period 1995-2000. We find that both the broad and narrow measure of international outsourcing of material inputs to low income countries are not significantly related to total factor productivity growth. In contrast, there is significant impact of purchased services from abroad on TFP growth. In particular, purchased services from abroad account for 20 percent of total factor productivity growth in the manufacturing sector in the selected OECD countries.