DT 14/22 - Offshoring and its impact on employment

Usually, in public discussion and academia there is concern about increased integration in the world economy and its impact on employment. While there is a number of studies for developed countries for developing economies these studies are scarce.
The aim of this work is to analyze the evidence of offshoring on the labor market for an emerging economy at the firm level. We analyze if there are heterogeneous effects of offshoring. To this aim, we take into account the level of income of the countries of origin of foreign inputs, the technological level of the importing sector, and the export status of offshoring firms.
The data source for this work is an unbalanced panel of manufacturing firms for the period 1998-2008 merged to detailed administrative data from the Customs Direction. We estimate a dynamic model using a system generalized method of moments which allows to tackle with rigidities in the labor market as well as the likely endogeneity of the model.
The whole picture that emerges seems to be that intermediate imports have a small impact on employment, and when the source is high or middle income countries the impact is positive mainly for firms in low technology intensive sectors while exporting firms and firms in high technology sectors are not affected.