Year

2010

Series

Upjohn Institute Working Paper No. 10-166

**Published Version**

Journal of Economic Perspectives 25(2): 111-132 (2011) under title Offshoring Bias in U.S. Manufacturing

Abstract

The rapid growth of offshoring has sparked a contentious debate over its impact on the U.S. manufacturing sector, which has recorded steep employment declines yet strong output growth—a fact reconciled by the notable gains in manufacturing productivity. We maintain, however, that the dramatic acceleration of imports from developing countries has imparted a significant bias to the official statistics. In particular, the price declines associated with the shift to low-cost foreign suppliers generally are not captured in input cost and import price indexes. To assess the implications of offshoring bias for manufacturing productivity and value added, we implement the bias correction developed by Diewert and Nakamura (2009) to the input price index in a growth accounting framework, using a variety of assumptions about the magnitude of the discounts from offshoring. We find that from 1997 to 2007 average annual multifactor productivity growth in manufacturing was overstated by 0.1 to 0.2 percentage point and real value added growth by 0.2 to 0.5 percentage point. Furthermore, although the bias from offshoring represents a relatively small share of real value added growth in the computer and electronic products industry, it may have accounted for a fifth to a half of the growth in real value added in the rest of manufacturing.

Issue Date

June 2010

Sponsorship

Funding from the Bureau of Economic Analysis and the Alfred P. Sloan Foundation

Subject Areas

INTERNATIONAL ISSUES; Globalization; Offshoring; Productivity measurement; Trade issues; ECONOMIC DEVELOPMENT; Industry studies

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