Offshoring and International Competitiveness: Evidence from Korean Manufacturing

Abstract

This paper estimates the effects of materials and services offshoring on international competitiveness in the Korean manufacturing industries from 2000 to 2009 using dynamic panel analysis techniques. The empirical results show that services offshoring has a significant positive effect on international competitiveness, while materials offshoring has a significant negative effect on international competitiveness. This finding implies that competitiveness in Korean manufacturing benefited from services offshoring, and took a hit from materials offshoring over this period. In addition, we also find evidence of a positive effect of exchange rate on international competitiveness over the sample period. These results are relevant to the current issue about the offshoring-competitiveness relationship under increasing competitive pressure in the global economy. The result of this econometric model implies that international competitiveness growth in the manufacturing industries would be stimulated directly by increased services offshoring. This is because further liberalization of services offshoring would promote technological development through access to high quality and state-of-the-art service platforms.