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Productivity Gains from Offshore Outsourcing: Evidence from the Chinese Manufacturing Industry

Using the Cobb–Douglas production function and vertical specialization share, the present paper measures the productivity spillover effects of offshore outsourcing in the Chinese manufacturing industry. We examine different production factors and the degree of openness by dividing the Chinese manufacturing industry into five major categories: capital-intensive business, technological-intensive business, labor-intensive business, open business and non-open business. The results show that offshore outsourcing is positively associated with productivity in the Chinese manufacturing industry as a whole, but less so in labor-intensive industries and more in capital-intensive industries. Moreover, the positive impact of outsourcing on productivity is slightly higher in open industries than in non-open industries. These results shed light on the differential spillover effects of offshore outsourcing on productivity. Our findings suggest that outsourcing structure is important to China's long-run competitive advantage. China's policy-makers should encourage further offshore capital-intensive and technology-intensive activities and focus more on outward-oriented offshore businesses.