International outsourcing and productivity growth

This study investigates the impact of international outsourcing to low? and high income countries on total factor productivity growth based on manufacturing industry data for 14 OECD countries from 1995 ? 2000. We find that the broad measure of international outsourcing of material inputs to low income countries is significantly negatively related to productivity growth. Furthermore, while the narrow measure of international outsourcing of materials is not significant, purchased services from abroad have a significant and positive effect on TFP growth. In particular, international services outsourcing accounted for 20 percent of the growth of total factor productivity in the manufacturing sector in the selected OECD countries.