In Search of ‘Offshoring’: Evidence from U.S. Imports of Services

This paper explores the relationship between imports of services by the United States and the international sourcing of services production activities using a number of different panel data estimators for a number of different categories of services. A conventional import demand relationship is augmented by measures of the activity of foreign-owned affiliates in the US and USowned service sector affiliates in other countries. There is a clear effect from production relocation on US imports of services. Outward investment in US-owned service sector affiliates is found to have a positive impact on import volumes. This is consistent with what might be expected if one motivation for such investments is to internationally source activities previously undertaken within the United States. Inward investment in the US service sector is found to reduce imports of services, other things being equal, pointing to substitution of trade and investment in services. However, inward investment in non-service sectors is found to stimulate imports of services, indicating complementarity at the aggregate level.