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Quantifying the productivity counterpart of outsourcing in the Italian manufacturing industries F. Daveri - M. Iommi - C. Jona-Lasinio OECD Productivity.

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Presentation on theme: "Quantifying the productivity counterpart of outsourcing in the Italian manufacturing industries F. Daveri - M. Iommi - C. Jona-Lasinio OECD Productivity."— Presentation transcript:

1 Quantifying the productivity counterpart of outsourcing in the Italian manufacturing industries F. Daveri - M. Iommi - C. Jona-Lasinio OECD Productivity Workshop Bern, 16-18 October, 2006

2 Bern – October 18, 2006 Motivation Growing importance of international outsourcing of services in Western economies. Growing importance of international outsourcing of services in Western economies. Evidence that both offshoring of services and of material inputs are associated with productivity gains Evidence that both offshoring of services and of material inputs are associated with productivity gains Amiti and Wei, 2006; Girma and Gorg, 2004; Criscuolo and Leaver, 2005. Amiti and Wei, 2006; Girma and Gorg, 2004; Criscuolo and Leaver, 2005. Outsourcing as such, irrespective of where to, should be associated to productivity growth Outsourcing as such, irrespective of where to, should be associated to productivity growth Italy was largely missing from previous research on this topic. Italy was largely missing from previous research on this topic. Availability of new symmetric I-O tables. Availability of new symmetric I-O tables.

3 Bern – October 18, 2006 Our aims Quantify the extent of domestic and international outsourcing in the Italian manufacturing sector. Quantify the extent of domestic and international outsourcing in the Italian manufacturing sector. Provide a comparison between direct and indirect measures of outsourcing. Provide a comparison between direct and indirect measures of outsourcing. Evaluate the productivity counterpart of outsourcing. Evaluate the productivity counterpart of outsourcing.

4 Bern – October 18, 2006 Data Symmetric input-output tables (industry by industry matrix) Symmetric input-output tables (industry by industry matrix) At the 60-sector level (according to the NACE Rev1.1 classification) At the 60-sector level (according to the NACE Rev1.1 classification) Time period: 1995-2003 Time period: 1995-2003 Focus on domestic and international outsourcing of manufacturing intermediates and services for 14 manufacturing industries Focus on domestic and international outsourcing of manufacturing intermediates and services for 14 manufacturing industries Our – broad - definition of market service providers: Our – broad - definition of market service providers: transports, storage and communications transports, storage and communications finance and insurance finance and insurance real estate and other business services real estate and other business services

5 Bern – October 18, 2006 LP in manufacturing: abrupt but scattered slowdown (ND first, then D) 1970-80 1980- 95 1995- 03 1995- 00 2000-03 Manufacturing2.83.00.21.0 Non-durables2.73.10.30.7-0.2 Durables2.92.70.01.7-2.7

6 Bern – October 18, 2006 TFP in manufacturing: same pattern as LP 1970-80 1980- 95 1995- 03 1995- 00 2000-03 Manufacturing-1.6-0.50.3-1.7 Non-durables-1.8-0.5-0.2 Durables-1.2-0.51.3-3.4

7 Bern – October 18, 2006 Measures of international and domestic outsourcing OSM i D = j [DOMESTIC INPUT PURCHASES OF MATERIAL j by IND. i / TOTAL NON-ENERGY INPUTS USED BY INDUSTRY i] OSM i D = j [DOMESTIC INPUT PURCHASES OF MATERIAL j by IND. i / TOTAL NON-ENERGY INPUTS USED BY INDUSTRY i] OSS i D = j [DOMESTIC PURCHASES OF SERVICE INPUT j by INDST. i / TOTAL NON-ENERGY INPUTS USED BY INDUSTRY i] OSS i D = j [DOMESTIC PURCHASES OF SERVICE INPUT j by INDST. i / TOTAL NON-ENERGY INPUTS USED BY INDUSTRY i] OSM i F = j [IMPORT OF MATERIAL j by INDST. i / TOTAL NON-ENERGY INPUTS USED BY INDUSTRY i] OSM i F = j [IMPORT OF MATERIAL j by INDST. i / TOTAL NON-ENERGY INPUTS USED BY INDUSTRY i] OSS i F = j [IMPORT OF SERVICE INPUT j by INDST. i / TOTAL NON-ENERGY INPUTS USED BY INDUSTRY i] OSS i F = j [IMPORT OF SERVICE INPUT j by INDST. i / TOTAL NON-ENERGY INPUTS USED BY INDUSTRY i]

8 Bern – October 18, 2006 Table 1: Domestic outsourcing of intermediate products in Italys manufacturing industries % points 199519992003 (1995-99) (1999-03) (1995-03) Food products and tobacco 26.826.125.6-0.7-0.5-1.1 Textiles and clothing 53.149.043.8-4.2-5.2-9.3 Leather and footwear 54.352.449.5-1.9-2.9-4.8 Wood and wood products 52.952.850.6-0.1-2.2-2.3 Paper, printing and publishing 37.536.333.9-1.2-2.4-3.5 Coke and refined petroleum products 22.221.714.7-0.5-6.9-7.5 Chemicals and chemical products 32.933.224.50.2-8.7-8.5 Rubber and plastic products 39.839.936.00.2-3.9-3.8 Other non-metallic mineral products 39.237.137.4-2.10.3-1.8 Basic metals and fabricated metal products 45.744.343.3-1.4-2.4 Machinery and equipment n.e.c. 55.753.351.5-2.4-1.7-4.2 Electrical and optical equipment 32.931.329.0-1.6-2.3-3.9 Transport equipment 47.643.840.9-3.8-2.9-6.7 Other mnfg. industries 45.547.244.71.7-2.5-0.8 Average manufacturing industry 41.940.637.5-1.3-3.1-4.3 Source: own calculation from ISTAT – National Accounts Domestic outsourcing of intermediates (OSM D ): down in 1995-03

9 Bern – October 18, 2006 Table 2: International outsourcing of intermediates in Italys manufacturing industries 199519992003 (1995-99) (1999-03) (1995-03) Food products and tobacco 8.5 9.30.00.8 Textiles and clothing 17.317.720.90.43.23.6 Leather and footwear 16.2 20.40.04.1 Wood and wood products 15.013.914.7-1.10.8-0.3 Paper, printing and publishing 21.518.218.0-3.4-0.1-3.5 Coke and refined petroleum products 29.516.132.5-13.516.42.9 Chemicals and chemical products 40.938.344.5-2.56.13.6 Rubber and plastic products 29.927.329.1-2.71.8-0.8 Other non-metallic mineral products 11.910.610.0-1.3-0.6-1.9 Basic metals and fabricated metal products 23.621.220.9-2.4-0.3-2.7 Machinery and equipment n.e.c. 14.114.415.00.30.60.9 Electrical and optical equipment 32.330.531.0-1.80.5-1.4 Transport equipment 24.526.929.32.4 4.8 Other mnfg. industries 22.218.521.1-3.72.6-1.1 Average manufacturing industry 22.019.922.6-2.1+2.70.7 Source: own calculation from ISTAT - National Accounts Intnl outsourcing of intermediates (OSM F ): up in 1995-03

10 Bern – October 18, 2006 Table 3: Domestic outsourcing of market services in Italys manufacturing industries 199519992003 (1995-99) (1999-03) (1995-03) Food products and tobacco 9.811.814.02.02.34.2 Textiles and clothing 11.213.415.42.22.04.2 Leather and footwear 12.413.613.21.1-0.40.8 Wood and wood products 14.615.818.01.22.23.4 Paper, printing and publishing 17.820.121.92.31.94.1 Coke and refined petroleum products 18.430.126.311.7-3.87.9 Chemicals and chemical products 10.912.414.31.51.93.4 Rubber and plastic products 13.915.918.22.02.34.3 Other non-metallic mineral products 20.421.823.01.31.22.6 Basic metals and fabricated metal products 14.718.019.03.40.94.3 Machinery and equipment n.e.c. 13.915.916.82.00.92.8 Electrical and optical equipment 12.514.314.71.80.42.2 Transport equipment 12.313.413.51.10.11.2 Other mnfg. industries 14.415.816.41.30.62.0 Average manufacturing industry 14.116.617.5+2.5+0.9+3.4 Source: own calculation from ISTAT - National Accounts Domestic outsourcing of services (OSS D ): up in 1995-03

11 Bern – October 18, 2006 Table 4: International outsourcing of market services in Italys manufacturing industries 199519992003 (1995-99) (1999-03) (1995-03) Food products and tobacco 0.60.70.80.1 0.2 Textiles and clothing 1.01.21.40.2 0.4 Leather and footwear 1.11.3 0.20.10.2 Wood and wood products 1.5 1.70.00.2 Paper, printing and publishing 1.5 1.60.00.1 Coke and refined petroleum products 3.45.85.62.4-0.22.2 Chemicals and chemical products 1.8 2.00.00.20.3 Rubber and plastic products 1.1 1.20.00.1 Other non-metallic mineral products 0.7 0.0 -0.1 Basic metals and fabricated metal products 0.60.7 0.10.00.1 Machinery and equipment n.e.c. 1.2 1.40.00.10.2 Electrical and optical equipment 3.74.85.31.10.51.6 Transport equipment 1.51.81.60.3-0.20.1 Other mnfg. industries 1.51.61.80.10.20.3 Average manufacturing industry 1.51.81.9+0.3+0.1+0.4 Source: own calculation from ISTAT - National Accounts Intnl outsourcing of services (OSS F ): mildly up in 1995-03

12 Bern – October 18, 2006 DIJ vs FH measures FH measure imputes average propensity to import for the economy to each industry – unwarranted assumption justifed by data limitations FH measure imputes average propensity to import for the economy to each industry – unwarranted assumption justifed by data limitations We have the right data to directly compute offshoring We have the right data to directly compute offshoring FH and DIJ measures are highly correlated: FH and DIJ measures are highly correlated: Across industries is 0.8 on average 1995-03 (but falls to.6 in Across industries is 0.8 on average 1995-03 (but falls to.6 in1999-03) FH shares systematically lower than DIJ shares FH shares systematically lower than DIJ shares Feenstra-Hanson measures systematically optimistic in evaluating extent of offshoring Feenstra-Hanson measures systematically optimistic in evaluating extent of offshoring Use of indirect outsourcing measures may bias estimates Use of indirect outsourcing measures may bias estimates

13 Bern – October 18, 2006 Empirical specification where: GROWTHLP it is the growth rate of value added per full-time equivalent employed worker in industry i (with i=1,..14) at time t (with t=1995,..,2003) ; GROWTHKL it is the growth rate of the industry capital labor ratios; OSS is the outsourcing of services; OSM is the outsourcing of intermediates d and f mean domestic and foreign

14 Bern – October 18, 2006 Empirical results Table 5: Outsourcing and productivity growth in the Italian manufacturing industries Dependent variable: yearly growth rate of value added per full-time equivalent employed (14 industries, 1995-03) WLSOLSWLSOLSWLSOLSWLSOLSWLSOLSWLS Our Osm, Oss Feenstra Hanson Osm Feenstra Hanson Osm Lagged Osm, Oss Lagged Osm, Oss Lagged Feenstra Hanson Lagged Feenstra Hanson Our Osm, Oss Our Osm, Oss Feenstra- Hanson Lagged Osm, Oss Growth of capital - labor ratio.39 *** (.11).45 *** (.13).36 *** (.12).45 *** (.15).31 ** (.13).44 ** (.17).36 ** (.17).38 ** (.17).43 *** (.13).65 *** (.16).41 *** (.13).30** (.14) (OSM foreign) -.18 *** (.05) -.27 *** (.04) -.25 *** (.10) -.40 *** (.08).10 ** (.05).11 ** (.05) -.19 ** (.10) -.16 (.10) (OSS foreign).03 (.03) -.03 (.04).25 ** (.11).39 *** (.11) -.02 (.04) -.02 (.05).11 ** (.04).09 ** (.04) (OSM domestic).09 (.07).00 (.06).27 *** (.07).23 *** (.06) -.08 (.09) -.04 (.08) -.12 (.09) -.11 (.08) (OSS domestic) -.32 *** (.10) -.56 *** (.11) -.54 *** (.18) -.89 *** (.18).06 (.13).02 (.14) -.14 (.16) -.15 (.18) Interaction terms R&D*OSM intnl.06 (.08).02 (.10).01 (.09).02 (.09) R&D*OSS intnl.00 (.02) -.00 (.02).02 (.11) -.01 (.02) R&D*OSM dom.20 ** (.10).20 (.14) 16 ** (.07) -.08 (.11) R&D*OSS dom -.00 (.09) -.02 (.12) -.04 (.12).09 (.10) Adjusted R- Squared.51.58.47.51.32.27.30.29.34.50.33.26 RMSE.027.034.028.036.032.041.042.031.037.031.316 # observations 112 98 112 98

15 Bern – October 18, 2006 Conclusions and future research Not all manufacturing industries outsource production to the same extent either inside or outside the country; Not all manufacturing industries outsource production to the same extent either inside or outside the country; Off-shore outsourcing took off in 1999-2003, not before; Off-shore outsourcing took off in 1999-2003, not before; Only the international outsourcing of intermediates is positively related to productivity growth, while the other forms of outsourcing are not robustly related to productivity growth Only the international outsourcing of intermediates is positively related to productivity growth, while the other forms of outsourcing are not robustly related to productivity growth

16 Bern – October 18, 2006 Conclusions and future research Direct and indirect measures of outsourcing provide different empirical results Direct and indirect measures of outsourcing provide different empirical results The results obtained from our indicator of outsourcing are quite different from those arising from the commonly used Feenstra- Hanson measures of outsourcing The results obtained from our indicator of outsourcing are quite different from those arising from the commonly used Feenstra- Hanson measures of outsourcing

17 Bern – October 18, 2006 Conclusions and future research Disaggregate market services further Potential to do so: I-O Table available with up to 101 industries Improve econometric techniques to more satisfactorily deal with endogeneity issues

18 Backup Slides

19 FH vs DIJ: OSM

20 FH vs DIJ: OSS

21 FH measure of service outsourcing

22 SYMMETRIC I-O TABLES Domestic intermediates Imported intermediates Total intermediates

23 SYMMETRIC I-O TABLES costi di produzione interna sostenuti dalla branca agricoltura per acquistare prodotti agricoli necessari per la sua produzione di prodotti agricoli, prodotti industriali e servizi costi di produzione interna sostenuti dalla branca agricoltura per acquistare prodotti industriali necessari per la sua produzione di prodotti agricoli, prodotti industriali e servizi Domestic use

24 SYMMETRIC I-O TABLES I.P.I.I.I.C. Imported use Supply


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