Offshoring, functional specialization and economic performance

Abstract

Due to advancements in information and communication technologies as well as reductions in transportation costs, cross-border economic interactions have intensified. This resulted in the formation of global value chains (GVCs). GVCs capture the phenomenon whereby production process is unbundled across national borders. The focus in the economic literature on GVCs has been to measure and analyze domestic value added in exports. While insightful, they do not inform on the functions that are undertaken, such as assembly, design, and marketing. This thesis studies offshoring, functional specialization, and their relation with economic performance. I use a variety of quantitative approaches and data, including unique business function data, to conduct three studies at different levels of analysis, namely at the country-industry, region, and firm level. The country-industry study reveals that distinguishing between intermediate stage and final stage offshoring is important since the two relate differently with onshore functional labor demand. The regional study suggests that the functional composition of the Dutch labor force is altering away from fabrication and administrative activities towards knowledge-intensive activities, such as R&D and marketing. The firm level study suggests that firms specialized in R&D and marketing are more productive compared to firms specialized in fabrication.