The impacts of offshore and onshore outsourcing on China's upgrading in global value chains: Evidence from its manufacturing and service sectors

Abstract

This paper investigates the impacts of offshore and onshore outsourcing on China's upgrading in global value chains (GVCs). First, based on Antràs and Chor (2018) and Wang et al., (2017), we build a model to theoretically structure the GVC networks and then calibrate China's positioning in GVCs. Next we incorporate both offshore and onshore outsourcing into one analysis framework to examine the effects of the two types of outsourcing on China's industrial upgrading. Then using its bilateral trade data and sectoral data from the WIOD (World Input-Output Database), we test empirically the impacts of offshore and onshore outsourcing on the positions of Chinese manufacturing and service sectors in GVCs in particular. We find that offshore outsourcing is a driving force behind China's upgrading along GVCs, while the effect of onshore outsourcing is insignificant. Additional empirical results also indicate that the headquarters economy and human capital strengthen the impacts of offshore outsourcing on China's GVC upgrading. Finally, based on the empirical findings, we derive some policy implications for Chinese government.