Banri Ito

Offshoring and Trade in East Asia: A Statistical Analysis*

Japanese shares of export and manufacturing value-added in the global market have declined significantly, whereas those in China have risen sharply. This paper examines how recent increases in offshoring by Japanese firms relates to the changes in the composition of export, the structure of national production, and the international distribution of manufacturing value-added in Japan, China, East Asian countries, the United States, and European countries, on the basis of our original survey of Japanese firms offshoring and the statistics of export and manufacturing production of these countries. It also discusses how the net cost saving of offshoring due to wage differentials and institutional factors will affect the sustainability of Japanese offshoring.

Offshore Outsourcing Decision and Capital Intensity: Firm-Level Relationships

In offshore sourcing, a firm chooses outsourcing to independent suppliers or in-sourcing from own foreign direct investment (FDI) subsidiaries. Based on the firm-level data on offshore make-or-buy decision covering all manufacturing industries, this paper compares averages, documents inter-firm distributions, and estimates multinomial logit models of the firms sourcing mode choice. As predicted by previous theoretical models, this paper directly confirms at the firm level that outsourcing firms tend to be substantially labor-intensive compared with firms in-sourcing from the same region, even after the firms R&D intensity, firm size, or industry is controlled for.

Offshore Outsourcing and Non‐Production Workers: Firm‐Level Relationships Disaggregated by Skills and Suppliers

Previous studies have established that offshoring firms employ more non-production workers. By using micro-data on Japanese firms, this paper disaggregates non-production workers. The share of skilled non-production workers tends to be high in offshoring firms but that of unskilled non-production workers is not. The share of non-production workers for the management of overseas activities tends to be high in FDI firms and in firms outsourcing to foreign suppliers, but not in Japanese firms outsourcing to offshore suppliers owned by other Japanese firms. These findings suggest that offshoring has different impacts on employment depending on suppliers and the workers skill.

Individual Characteristics, Behavioral Biases, and Trade Policy Preferences: Evidence from a Survey in Japan

Import liberalization is one of the most actively debated issues in trade policy. This paper examines how trade policy preferences are related to individual characteristics based on a survey in Japan. Among 10,000 surveyed individuals, people working in non‐agricultural sectors, those working in managerial occupations, or those above retirement age tend to favor freer imports. This paper also finds that people who are influenced by the status quo bias are likely to oppose import liberalization even after controlling for each individuals various characteristics, suggesting that neither income compensation nor insurance schemes are sufficient for expanding support for free trade.

Intra-Firm Trade and Contract Completeness: Evidence from Japanese Foreign-Affiliated Firms

The issue on the growth and its variation of intra-firm trade of intermediate inputs is of great interest in international economics. This paper examines the determinants of intra-firm trade by shedding light not only on factor price and trade cost but also on the organizational form in terms of the ownership of oversea plant and control over intermediate input for further processing, using micro data at the affiliate firm level. In the empirical analysis, since organizational form and intra-firm trade are jointly determined, we adopted instrumental variable regression treating a choice of purchasing manager as an endogenous variable. The results suggest that control over input decisions critically affect intra-firm trade of intermediate input.

Features of Japanese Internationalized Firms: Findings Based on Firm-Level Data

By using firm-level data on the Japanese manufacturing industry, we examine and compare the characteristics of internationalized Japanese firms, namely firms that engage in exports and/or foreign direct investment (FDI), with those from selected European countries. We find that the productivity of internationalized firms is higher than that of domestic firms, thus confirming the findings of previous studies on Japan and other countries. In addition, we show that the productivity differences between domestic firms, exporters, and FDI firms are substantially smaller in Japan than they are in European countries. This finding suggests that productivity differences alone cannot determine the export or FDI behavior of Japanese firms.

Productivity Premia of Offshoring Firms in East Asia: Evidence from Japanese Firms

During the period 2000-2009, offshore sourcing by Japanese firms to East Asian countries rapidly increased. Our survey on Japanese offshoring shows that 20 per cent of the Japanese companies are performing offshore sourcing and more than 50 per cent of the companies with 300 or more employees are conducting offshore sourcing in China and other East Asian countries mainly for the tasks of manufacturing parts and intermediate goods or assembling final goods. It is predictable that such an increase of offshoring stimulates the exit of firms with low efficiency from the market and raises the productivity of existing firms through a change of resource allocation within or between firms. Our empirical estimation based on the Japanese firm-level data shows that the productivity differs by 3 per cent between offshoring and non-offshoring firms and offshoring raises the productivity by 5 per cent ceteris paribus.