Can we really trust offshoring indices?

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ContentslistsavailableatSciVerseScienceDirect

Structural

Change

and

Economic

Dynamics

j o ur n a l ho m e p age :w w w . e l s e v i e r . c o m / l o c a t e / s c e d

Can

we

really

trust

offshoring

indices?

!

Davide

Castellani

a,b,e,∗

_,

_Luca

_De

_Benedictis

c

_,

_Daniel

_Horgos

d,e a_Department_of_Economics,_Finance_and_Statistics,_University_of_Perugia,_Italy

b_IWH,_Halle,_Germany

c_Department_of_Economic_and_Financial_{Institutions,}_University_of_Macerata,_Italy d_Department_of_Economics,_Helmut_Schmidt_University,_Hamburg,_Germany e_Centro_Studi_Luca_d’Agliano,_Milan,_Italy

a

r

t

i

c

l

e

i

n

f

o

Articlehistory: ReceivedMay2011

ReceivedinrevisedformOctober2012 AcceptedOctober2012 Available online xxx JELclassification: F14 F10 Keywords: Offshoring Structuralchange Input–outputindices

a

b

s

t

r

a

c

t

Thispaperarguesthatoffshoringindicesoftenmeasuresomethingdifferentthanwhatwe thinktheyare.Usingdatafrominput-outputtablesof21Europeancountriesfrom1995 to2006wedecomposeanoffshoringindex,distinguishingbetweenadomestic(structural change)andaninternationalcomponent(importedinputsratio).Regardingoffshoringof businessservices,alargeshareoftheindexvariationisdrivenbythedomesticcomponent. Thisisevenmorepronouncedforoverallserviceoffshoring.Inthecaseofmaterial off-shoring,bycontrast,theinternationalcomponentdrivesthemainvariationoftheindices. Ourresultsthereforeshowthat,regarding(business)services,thetypicalcalculationof offshoringindicestends tooverestimatetherole oftheimported inputscomponent, neglectingtheroleplayedbystructuralchangesintheeconomy.

1. Introduction

Offshoring is one of the main ingredients of con-temporary international trade. Its relevance is growing widely all over the world, and is both orienting the politicalagendaofcountriesaswellasshapingtheway ! TheauthorsthankthetwoanonymousrefereesofSCED,aswellasthe participantsoftheETSGConference(Lausanne2010)andtheWorkshop on‘TheRoleofBusinessServicesforInnovation,Internationalisationand Growth’(Rome2010),forhelpfulcomments.WealsothankRosarioCrinó, AlessiaLoTurco,andCeciliaJona-Lasinioforthehelpfuldiscussiononthe topicofthepaper.Theusualdisclaimerapplies.Financialsupportfromthe ItalianMinistryofUniversityandResearch,Prin2009‘Production,R&D andknowledgeoffshoring:economicanalysesandimplicationsforItaly’ (Castellani)and“Theinternationaltradenetwork:empiricalanalyses andtheoreticalmodels”(http://www.tradenetworks.it)(DeBenedictis) isgratefullyacknowledged.

∗ Correspondingauthorat:DepartmentofEconomics,Financeand Statistics,UniversityofPerugia,Italy.

E-mailaddresses:davide.castellani@unipg.it(D.Castellani),

debene@unimc.it(L.DeBenedictis),horgos@hsu-hh.de(D.Horgos).

economiststhinkaboutinternationaltradeandits conse-quences(FeenstraandHanson,1996a,b,1999;Arndt,1997, 1998a,b;GrossmanandRossi-Hansberg,2008).Parallelto itsrelevance,theuseofthetermissomehowfuzzyandits quantificationisproblematic.

Fromaterminologicalpointofview,offshoringcanbe broadlydefinedasafirm’sallocationofbusinessactivities toanothercountry,eitherbyobtaininggoodsandservices fromanunaffiliatedforeignsupplierorbyinvestingina foreignaffiliateorjointventure.Sincethereisno standard-izedtermyet,variousattemptshavebeenmadetogivethe phenomenonapropername.Thispaperusesthroughout thetermoffshoring.1

1 _While_the_term_{international}_outsourcing_is_also_very_common, off-shoringhasamuchlongerhistoryandcanbetracedbackto1895(Amiti

andWei,2005a;Horgos,2009b).Especiallyinrecentyears,with

numer-ouscontributionson(business)servicesandfirmleveltrade,theterm offshoringexperiencedarenaissance(Winkler,2010;Crinò,2009;Crinò,

2012;AmitiandWei,2005a,b;Wagner,2011;Schwörer,2012;Falzoni

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Since offshoring activities are usually difficult to be observedthroughfirm-levelinformation,direct compara-tiveevidenceandevaluationisactuallyhighlyimprobable. However,therelevanceofthephenomenonandits possi-bleconsequencesonthedomesticlaborandgoodsmarkets haveencouragedquantificationbasedonindirectevidence. Thus,variousproxiesforthemainunobservedvariableof interest,i.e. theoffshoringactivities ofa representative domesticfirm,havebeenproposedintheliterature.Since offshoringinvolvesasubstantialflowofimportsof inter-mediategoodsandservices(Feenstra,1998),input–output tableshavebeenextensivelyusedtocomputeindicesof offshoringatthesectoralandaggregatelevel.2

Mostoftheoffshoringindices relateimported inter-mediatesusedintheproductionofanindustrytosome kindofnormalization,ase.g.thetotalvalueofthe indus-try’sproduction.Thisincorporatestheidea,alongthelines of Feenstra (1998), that the share of imports of inter-mediate goodsand services over production should be associated with a higher relevance of offshoring. What mostoftheliteratureusingthesekindofindicesfor empir-icalexaminationsneglectsis thattheindicesaredriven bytwoverydifferentcomponents:theshareofimported todomesticallyproducedintermediates,whichisthetrue internationalcomponent, and theshare ofdomestically producedinputsintotalproductionoftheindustry,which insteadisrelatedtothestructuralchangeoftheeconomy (domesticcomponent).

Inthispaper,wecontributetothisdomesticvs. interna-tionaldimensiondebateonanempiricalground.Inorderto separatethetwocomponents,weapplyashift-and-share decompositionofacommonlyusedoffshoringindexover time.Inparticular,(i)thefirstcomponentmeasuresthe shareofimportedbusinessservicesrelativetotheuseof domesticallyproducedbusinessservices,andcanbethe resultofaprocessofoffshoring;(ii)thesecondcomponent measurestheshareofdomesticallyproducedbusiness ser-vicesusedin productionin themanufacturingindustry, whichisaproxyforthedegreeofdomesticoutsourcing, entailingtheprocessofstructuralchange.Forcomparison, wealsocomputethesamedecompositionforthecaseof overallservicesandmaterialinputs andweadditionally focusontheserviceindustryastheusingsector.

Themainresultofourcontributionisthattheincrease inimportofbusinessservicesinmanufacturingproduction, usedas anindicatorof therise in businessservice off-shoring,isgrosslyoverestimatingtheactualincreaseinthe relianceonforeignproducedservicesinmanycountries. Thesameistrueforoverallservicesandtoalessextent tomaterialinputs.Thus,theadvicethatweobtainfrom

andTajoli,2010;Jona-Lasinio,2010;OECD,2006).Inthecontributionat

handwesticktothistradition,evenwhenbeingawareofthatseveralcited papersuseinternationaloutsourcinginstead.Itisimportanttonotethat whenusingoffshoringwedonotdistinguishiftheimportedintermediate isproducedinhouseorboughtfromanunaffiliatedsupplier.

2 _See_Horgos_(2009a)_for_an_overview_of_different_indices_used_as_proxies

foroffshoringactivities,theirquality,andtheirperformancewhenbeing usedinestimatinglabormarketeffects.Themainadvantagesand limi-tationsofusinginput–outputtableshavebeenhighlightedinChenetal.

(2005),Feenstraetal.(2010).

thispaper’sanalysisisthatweshouldnotreallytrust off-shoringindices,whenbeingcalculatedinatraditionalway (especiallywhenassessingserviceoffshoring).

Therestofthepaperisorganizedasfollows.Section2 discussestherelevantliterature,whileSection3provides theformaldetailsofindexcalculationanddecomposition intothedomesticandinternationalcomponent.Our empir-icalanalysisalongwiththeresultsobtainedispresentedin Section4.Section5concludes.

2. Abriefsketchoftherelevantliterature

Empirical contributions using offshoring indices presentstrongevidenceofanincreasingoffshoring activ-ity for a large set of different economies. Concerning materialoffshoring,CampaandGoldberg(1997)calculate theoffshoringactivityfortheUS,Canada,UK,andJapan, whereasStrauss-Kahn(2003)presentsstatisticsforFrance. Geishecker and Görg(2005) or Horgos (2011) examine offshoringinGermanyandDaveriandJona-Lasinio(2008) aswellasFalzoniandTajoli(2010)dothesameforthe Italian economy. Withrespecttoservice offshoring,see e.g. Winkler (2010) for evidence on Germany or Crinò (2009), Crinò (2012) for a comparative overview. Liu et al. (2011) examine location determinants of service offshoring.Theevidenceputforwardbyallthisliterature is highlyconsensual:offshoringis strongandishereto stay.

Atthesametime,afterasetbackduringthe1980s, struc-turaltransformationinthemanufacturingsectorhasbeen accelerating both in advanced and newly industrialized economies(MemedovicandIapadre,2009).

In thetraditionof Cheneryetal.(1986)a numberof studieslookatthelongtermandpersistentshiftsinthe sectoral composition of economic systems. Among oth-ers, McMillan and Rodrik (2011) emphasize that when, in developing countries, resourcesmove fromless pro-ductivetomoreproductiveactivitiestheeconomygrows even if there is no productivity growth within sectors. Accordingly, they show that a reshuffling of resources (e.g.labor)fromlowtohigh-productivitysectors,andthe consequent change in the composition of value added sharesintheeconomy,arekeydriversofdevelopmentand economicgrowth.Inadvancedeconomies,ithasbeen doc-umentedthatthedecreaseintheshareofmanufacturing activitieshascoexistedwithanincreasingimportanceof serviceactivitiesrelatedtoproductionandwitha grow-inginterdependencebetweenmanufacturingandservices. Forexample,MontresorandVittucciMarzetti(2011)apply asubsystemapproachoriginallydevelopedbyMomigliano andSiniscalco(1982)andshowthattheintegrationof busi-nessservicesintothemanufacturingsubsystemincreased (intermsof employment)in 7OECDcountries(Canada, Denmark,Germany,France,Japan,UKandUSA)from19.9% intheearly80sto25.9%inthemid-90s.Thisexplainsmost (althoughnotall)ofthedeclineintheshareofemployment inthemanufacturingsubsystemoverthesameperiod.3_The

3_Similar_results_have_been_found_for_Italy_by_Momigliano_and_Siniscalco

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processoftertiarizationthattakesplaceinmost industri-alizedeconomiesresultsmainlyfromtheoutsourcingof serviceactivitiesthatwerepreviouslycarriedoutwithin manufacturingfirms.Thereasonswhythemanufacturing industryincreasestheuseofexternalservicesaremanifold. Inmodern,specializedeconomies,thecomplexityofnew productionprocessesdemandsforadditionalcoordination andcontrol(Greenfield,1996).Especiallywithregardto anincreasein(vertical)specialization,demandfor addi-tionalservicelinkstoorganizeproductionrises(Jonesand Kierzkowski,1990;Francois,1990a,b).Also,product differ-entiationmayincreasetheneedforadditionalservicetasks. Thesupply ofmodern,innovativeservicesthat comple-mentcorecompetenciesofmanufacturingfirmsmayalso increaseoutsourcingactivitiesinthemanufacturingsector (MacPhersonandVanchan,2010;GreenhalghandGregory, 2001).Thisprocessofoutsourcingnon-coreservice activi-tiesallowsmanufacturingfirmstofocusmoreontheircore competenciesenhancingfirms’productivity(Prahaladand Hamel,1990).4

Thequestionthatimmediatelyfollowsfromthe obser-vationoftherecentcoevolutionofoffshoringandstructural changeisifthestrongincreaseoftheoffshoringofservices that hasbeenreportedinthe lastdecadesis capturing, somehowspuriously,thewidespreadincreaseinservice inputs demanded by the manufacturing industry more thananactualincreaseintheshareofimportedservices usedbythemanufacturingindustry.Wesubmitthatthe commonly used indices of service offshoring based on input–outputtables,whichcalculatetheshareofimported serviceintermediates intotal production(orinputuse), are not separating,as theyshoulddo, theinternational dimensionofoffshoringfromthedomesticdimensionof technologicaland/orstructuralchange,i.e.forexamplethe increasinguseofservicesinmanufacturingproduction.A prevalenceofthesecondcomponentandaminorroleof thefirstonewouldindicatethatwhatiscapturedbythe offshoringindicesmayhavelittletodowithoffshoring.

Inthisperspective,ourpaperconnectstoanimportant debateonwhetherthedeclineinvalueaddedinthe man-ufacturingindustryinindustrializedeconomiesisdueto anincreaseinimportedintermediatesortoamore inten-siveuseofdomesticallyproducedservicesinstead.Inthis respect,Sinn(2005)reportedthatinthelasttwodecades thegrowthofvalueaddedintheGermanmanufacturing sector didprogressively fall behind thegrowth in pro-ductionand,becauseofthispattern,labeledtheGerman economy withthenicknameofa “BazaarEconomy”.He arguedthatfirmsin themanufacturingsectorwere act-ingasawheel,importingintermediatesfromabroadand (afterafewminorchanges)sellingthefinalcommodities onthedomesticandespeciallytheworldmarket.The crit-icsofthisthesis(e.g.MorganStanley,2004a,b;Financial TimesGermany,2004a,b,c)opposedthatthegapbetween output and value added could be explained by simple

4_In_the_business_literature,_the_increased_linkage_between manufac-turingandservicesandthesoresultingrisingserviceintensityisalso denotedasservitizationofbusiness(VandermerweandRada,1988;Pilat

andWölfl,2005).

tertiarization,withmanufacturingfirmssourcingservice tasks from the domestic service sector. The domestic dimensionwasconsideredtobeprevalentwithrespect totheinternationaloneassociatedwiththe“Bazaar Econ-omy”hypothesis.

3. Theoffshoringindex

In order to illuminate why and how the offshoring indicesaredrivenbythesetwodifferentcomponents,we discusstheformaldetailsonindexcalculationinthis sec-tionbeforepresentingourempiricalresultsinSection4. Thevastmajorityofcontributionsmeasuringoffshoringat thesectoralandaggregatelevelreliesonindicatorsbased onimportsofintermediategoodsnormalizedbythesize oftheindustry.5 _We _follow_this _tradition_and _focus_our

analysisonthefollowingindex: OffW jt =

!

w∈Wmwjt pjt . (1)

TheindexinEq.(1)relatesthesumofimportedinputs mw

jtsuppliedbyindustriesw∈Wandusedinindustryjto

thetotalvalueofproduction,p_jt,inindustryjattimet.In ouranalysisweconsiderthreedifferentsetsofinputsW:all serviceinputs(W=ser),thesubsetofbusinessservice activ-ities(W=bs),andintermediatematerialinputs(W=mat). Asforthelevelofdisaggregationoftheusingindustry,we mainlyfocusontheaggregateofmanufacturingindustries (j=man),butwealsoperformacomparativecheckforthe serviceindustry(j=ser).Itisworthmentioningthat,as dis-cussedin Horgos(2009a),onecouldimplementvarious alternative normalizations. In particular, one frequently usedalternativetototalproductionp_jtistotalimportsor grossoutput(Yeats,2001;Egger andEgger,2002;Chen etal.,2005;GeisheckerandGörg,2005).Othershaveused theamountoftotalnon-energyintermediateinputs( Jona-Lasinio,2010).Itcanbeeasilyshownthatouranalysiscan beextendedtoanyotherpossiblenormalization,sincethe import-relatedpart(thenumeratorinEq.(1))wouldnot changeunderalternativenormalizations(thedenominator inEq.(1)).Therefore,anyalternativenormalizationfactor, a_jt,willberelated totheoneusedinequation1bythe proportionalityratiopjt

ajt.

6

5 _See_e.g._Feenstra_and_Hanson_(1996a,b)_,_Hummels_et_al.₍₂₀₀₁₎_,_Yeats

(2001),EggerandEgger(2002),Strauss-Kahn(2003),Hijzenetal.(2004),

AmitiandWei(2005a,b),GeisheckerandGörg(2005),Geisheckerand

Görg(2008),Hijzen(2007),orHorgos(2011).

6 _Authors_who_use_{input–output}_indices_often_calculate_them_at differ-entlevelsofaggregation:a“broad”anda“narrow”versionoftheindex

(seee.g.FeenstraandHanson,1996a,b,1999;Olsen,2006;Horgos,2011).

Whilethe“broad”variantconsidersallpossibleimportedinputs,the “narrow”versionconsidersonlyimportedinputsofthesametwo-digit industryj.Often,bothformsarepresentedinordertotestrobustness oftheresults.Evenwhenthenarrowmeasuremayexhibitsome advan-tages,e.g.tobeinlinewiththeWTOmode1definitionofoffshoring(Olsen, 2006),itisnotpossibletocalculatethisindexforthecontributionathand: anarrowindexcanperdefinitionnotbecalculatedwhenfocusingon (business)serviceoffshoringofmanufacturingindustries.Notehowever thatallthreevariantscalculatedinthiscontribution(businessservice, service,andmaterialoffshoring)arealsonotofthe“broad”form.They includenotallbutspecificsubsetsofinputs.Whilecomparingservice

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TheindexinEq.(1)canbedecomposedintotwoparts: OffW jt =

!

wmwjt pjt =

" !

wmwjt

!

wuwjt −mwjt

# " !

wuwjt−mwjt pjt

#

=

" !

wmwjt

!

wdwjt

#

" !

wdwjt pjt

#

=MW jt ·OWjt, (2) whereuw

jt anddwjt denotethevalueoftotalanddomestic

inputw(respectively),usedbysectorjattimet.

Eq.(2)highlightsthattheoffshoringindexusedinthe literatureisinfactcomposedoftwoparts:MW

jt andOWjt.

Ontheone hand,there isthevalue ofimported inputs inthesetWasashareofthevalueofdomestically pro-ducedinputs(inthesameset)usedintheproductionof sectorjattimet,whichreflectstheextenttowhichagiven setofinputsisimportedratherthansourceddomestically. Forexample,whenWdenotesthesetofbusinessservices inputs(W=bs),thiswilltellushowmuchbusinessservices usedinproductionofagivengoodisboughtfromforeign suppliers(i.e.imported),ratherthanbeingpurchasedfrom domesticcompanies.Werefertothisratioastheimported inputsratio(MW

jt ).Ontheotherhand,theindexincludesthe

shareofdomesticinputsinthesetWusedinthetotalvalue ofproductionofgoodjattimet.Thiscanbethoughtasa measureofthedegreeofstructuralchangeordomestic out-sourcingofinputsWinindustryjattimet(OW

jt),thatishow

muchafirmbuys,forexample,businessservicesfromother domesticfirmsratherthanproducingthemwithinthefirm. WhileMW

jt reflectsthecontributionofinternational

trans-actions,OW

jt dependsondomesticactivitiesonly.7

The contribution of international transactions, as opposedtothedomesticcomponent,tothedynamicsofthe offshoringindexcanbeexaminedapplyinga shift-share analysistoEq.(2).Thechange(denotedby!)intheindex overtimeisthesumofchangeofthedifferentcomponents, whenkeepingtheothercomponentfix(denotedbya“bar” overthevariables).8

!OffW_j =!(O·M)W_j =(!O·M)W_j +(O·!M)W_j , (3) Thus,foranyW=bs,serv,mat,anincreaseinOffW

j from

ttot+rcanbedrivenbyeitherincreasingimportedinputs (e.g.business services if W=bs)as a share of domesti-callyproducedones,(O · !M)W

j ,whichisconsistentwith

amoreintenseuseofoffshoring,orbydeepeningtheshare ofthesetofinputsboughtfromdomesticsuppliersand offshoringwiththespecificcaseofbusinessserviceoffshoring,wetryto beasconservativeaspossible.

7 _It _is _worth _noting, _that _our _index _can _be fur-ther decomposed into the following expression: OffW

jt = [(

!

_wmw jt)/(

!

wd w jt)][(

!

wd w jt)/(

!

wu w jt][(

!

wu w jt)/(pjt)].While differ-entiatingbetweentheuseofimportedinputsvs.domesticinputs(the firstpartoftheexpression),theuseofdomesticinputsinpercent(the secondpart),andtheuseofinputsinproduction(thethirdpart),aforeign componentwouldbepartofanyofthethreepartsofthedecomposition (remember: mw

jt=u w jt−d

w

jt).Thus, it would beimpossible to clearly separatetheinfluencesofchangeshappeningatthedomesticandatthe foreignlevel.

8 _In_order_to_fix_one_of_the_components,_we_use_the_mean_value_of_the firstandthelastyearofobservation.

usedinproduction,(M·!O)W_j .Welabelthefirstonethe internationalcomponentandthesecondonethedomestic component.

Todistinguishbetweenthesetwocomponentsisone ofthecoreexerciseinthisanalysis.Sincemostprevious contributions thatuseinput–outputbased indicesshow anincreaseinoffshoringactivities,itisimportantto iden-tifytowhatextentsuchreportedpatternisactuallydriven byamoreintensiveuseofimportedinputs,orbya(more general)risein outsourcingofintermediates.Inthe lat-ter case, theindices arenot revealinganyinternational activity, however, theymay still capture some specific sourcing strategy, namelyan increase in domestic out-sourcing,whichinthecaseof(business)servicessuggests sometertiarizationandstructuralchangeoftheeconomy. 4. OffshoringinEuropeaneconomies

Inordertoshedlightonthecontributionofthedomestic andinternationalcomponentstothevariationofoffshoring indices we use data from the Eurostat’s input–output tables, combininginformation from21EU countries.As mentionedbyFeenstraetal.(2010),amajordrawbackof moststudiescalculatingoffshoringindicesonthebaseof input–outputdataisthat,duetothelackofimporttables forthevariousinputs,theyneedtoassumethattheshareof importofagivenintermediateinputisequaltotheshareof importoffinalgoods(importproportionalityassumption). Forthe21Europeancountriesconsideredinthisanalysis, Eurostatprovidesaspecificimportmatrixforintermediate inputsthatallowsustoovercometheimport proportion-alityassumptionandtotrackdomesticandinternational inter-sectorallinkages.9

Sincedifferentcountriesprovidedatafordifferenttime periods(from1995to2006),withyearlydatanotalways available,wecompute!OffW_j foreachcountry,usingthe firstandlastyearofavailabledata.Wefocusonthe man-ufacturing industry as the using industry (j=man) and computethedecompositioninEq.(3)forthesubsetof busi-nessserviceinputs(w=NACE71–74andW=bs).Thechoice ofthislevelofanalysisisduetotheincreasedrelevanceof theinterlinkagesbetweenbusinessservicesand manufac-turingforthecountries’economicgrowth(Guerrieriand Meliciani,2005),asdiscussedintheintroductionabove.For comparison,weextendouranalysisalsotooffshoringofall serviceinputs(w=NACE01–37,exceptforNACE10–12and W=serv)aswellasintermediatematerialinputs(w=NACE 50–74andW=mat)bythemanufacturingindustry.Finally, asacomparativecheck,wereplicateourdecomposition focusingontheserviceindustryastheusingsector(j=serv). Thisallowsustoinvestigatetowhatextentoffshoringof servicetaskshasalsocharacterizedtheserviceindustry. 4.1. Degreeandtrendsinoffshoring

InTable1wereportthevaluesoftheOffW

man,t indices

forthe21EUcountries,consideringthefirstperiodt0 of

9_See_Feenstra_and_Jensen₍₂₀₁₂₎_for_a_recent_attempt_to_overcome

thelimitsimposedbytheimportproportionalityassumptiontotheUS input–outputoffshoringindices.

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Table1

Degree ofoffshoring inthe manufacturingindustryin21European countries. Country Offbs man,t0 Off ser man,t0 Off mat man,t0 WesternEurope Austria 0.27% 0.87% 21.9% Belgium 0.53% 2.12% 31.8% Denmark 0.45% 0.52% 19.6% Finland 1.53% 2.58% 15.7% France 0.32% 0.81% 13.7% Germany 0.21% 0.53% 13.6% Greece 0.21% 0.47% 13.6% Ireland 10.26% 12.24% 29.2% Italy 0.44% 1.34% 14.6% Netherlands 0.75% 1.69% 25.2% Norway 0.72% 1.54% 17.6% Portugal 0.24% 0.51% 22.8% Spain 0.75% 1.04% 15.5% Sweden 0.85% 1.88% 18.8% Median 0.49% 1.19% 18.2% Inter-quartilerange (0.46%) (1.23%) (7.8%) EasternEurope Estonia 0.41% 1.41% 38.4% Hungary 2.43% 2.55% 34.3% Lithuania 0.11% 1.50% 17.7% Poland 0.20% 0.53% 20.4% Romania 0.72% 1.05% 13.2% Slovakia 1.40% 2.75% 35.2% Slovenia 0.27% 1.27% 26.2% Median 0.41% 1.41% 26.2% Inter-quartilerange (0.82%) (0.86%) (15.7%) CorrelationwithGDP −0.164 −0.192 −0.310

availabledata.ThevalueofOffmat

man,t0isclearlyhigherthan for Offser

man,t0 (asshowne.g. byAmitiand Wei(2005a,b)

fortheUSandtheUK,aswellasbyWinkler(2010)for Germany),whichinturnishigherthanOffbs

man,t0.However,

remarkabledifferencesemergeacrosscountries.Offmat man,t0

rangesfromover30%inEstoniaandHungary,tolessthan 15%inFrance,Germany,Greece,ItalyandRomania.Import ofservice(Offser

man,t0)andbusinessservice(Off

bs

man,t0)inputs

accountforabout2%and1%,respectively,butagainwith strikingdifferencesacrosscountries.Themedianvalueof Offser

man,t0 and Off

bs

man,t0 is surprisingly similar in Eastern

and WesternEuropeancountries, whileOffmat

man,t0 is

sub-stantially higherin theformergroup.Thisis somewhat consistentwiththeideathattheshareofimported inter-mediatesintotalproductionmaybeinflatedbytheactivity ofincomingmultinationals,whichhavebeenveryactivein EasternEuropeancountriesoverthelastdecades(wewill getbacktothisissueingreaterdetailbelow).Inthethree casesconsidered,thelevelofOffW

man,t0 isalsonegatively

correlatedwiththesizeofcountries(measuredbyGDP), suggestingthatsmallercountriesmaybemoreinvolvedin offshoring,althoughthiscorrelationisrelativelymild.

In Fig. 1we plot Offbs

man,t,as wellas theMman,tbs and

Obs

man,tcomponents,overtime,normalizingthemtoonein

thefirstyearofobservation.Resultsshowthattheshare ofimportedbusinessservicesintotalmanufacturing pro-duction(Offbs

man,t)rosesubstantially overthe1995–2006

period in most countries. However, while in countries suchasGermanyandAustria,thegrowthintheshareof

domesticallypurchasedbusinessservicesintotal produc-tion(Obs

man,t)isnegligible,inothercountries,suchasFrance,

Spain,Italy,Denmark,Estonia, Hungaryand Slovenia,is not.Asaresult,inthislattergroupofcountriesthegrowth intheratioofimportedoverdomesticallyproduced busi-nessservicesusedinmanufacturingproduction(Mbs

man,t)

islowerthanthegrowthinimportedbusinessservicesin totalmanufacturingproduction.

Thispatternisevenmorepronouncedforserviceinputs as a whole. As depicted in Fig. 2, Oser

man,t grew at the

same(oranevenhigher)ratethanMser

man,tinItaly,France,

Belgium,Greece, Finland,Netherlands, Portugal, Estonia andRomania.Conversely,inthecaseofmaterial interme-diateinputs,Fig.3showsthatOmat

man,t hasbeendeclining

inmostcountries,whileMmat

man,thasincreased.To

summa-rize,theevidencesuggeststhatinthecaseoftheaggregate ofserviceinputsand(toalesserextent)forthesubsetof businessservices,structuralchangemayhaveplayeda sig-nificantroleininflatingthemeasuresofoffshoringusedin theliterature.Wewillexplorethisaspectingreaterdetail usingtheshift-sharedecompositionproposedinequation 3.

4.2. Shift-shareanalysis

Thissectionanalyzesthedifferentcontributionsofthe imported inputs ratio(MW₎_and _structural _change_(OW₎

to the change of import of inputs W in total produc-tion(!OffW

man)ingreaterdetail. Inparticular,we report

the shift-share decomposition proposed in Eq. (3). For each ofthe21 EUcountriesconsideredinthis analysis, Tables 2 and 3report !OffW_, _the_{international}

compo-nent,(O·!M)W_man,thedomesticcomponent,(M·!O)W_man, aswellasthepercentagecontributionoftheinternational componenttotheoverallchangeoftheoffshoringindex, ((O·!M)W_man/!OffW_man).

4.2.1. (Business)serviceinputs

ResultsinTable2revealsthattheshareofimported business services in total manufacturing production (!Offbs

man)increasedin17 outof21countries. Withthe

exceptionofIreland(whereitincreasedby13.6%points), Sweden(1.79%points),Finland(1.41)andtheNetherlands (1.22),!Offbs_man rose byless than 1 percentagepoint in mostcountries. However, given thelow level of Offbs

man

documentedinTable1,thegrowthrateisoftencloseor above100%,asshown inFig.1.Thisgrowthwouldlead toconclude,in linewith existing literature,that in the 1995–2005period,businessserviceshavebeen substan-tiallyoffshored.Theshift-sharedecomposition,allowsto appreciatethatthispatternistheresultofthejoint contri-butionofboththeinternationalanddomesticcomponents. Onlyinfivecountries(Austria,Finland,Germany,Greece andIreland)apositivecontributionof(O·!M)W_manhasnot beenaccompaniedbyasignificantsubstantial(M·!O)W_man. Themedianfor(O·!M)bsman

!Offbsman

isbelow70%inWesternEurope, suggestingthatinhalfofthesecountries,thecontribution ofthedomesticcomponent,(M·!O)bsman,to!Offbsman has

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Fig.1.ImportedintermediatesratioandoutsourcinginEurope:businessserviceinputs.Numbersarenormalizedto1forthefirstyear. Datasource:Eurostatinput–outputtables.

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Fig.2. ImportedintermediatesratioandoutsourcinginEurope:serviceinputs.Numbersarenormalizedto1forthefirstyear. Datasource:Eurostatinput–outputtables.

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Fig.3. ImportedintermediatesratioandoutsourcinginEurope:materialinputs.Numbersarenormalizedto1forthefirstyear. Datasource:Eurostatinput–outputtables.

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Table2

Shift-sharedecompositionofoffshoringindicesforEuropeancountries:businessservicesinputs.

Country(timeperiod) Manufacturing(15–37)(percentagepointschange)

!Offbsman (O·!M) bs man (M·!O) bs man ((O·!M) bs man)/(!Off bs man) WesternEurope Austria(1995–2005) 0.60 0.64 −0.04 107% Belgium(1995–2005) 0.54 0.41 0.14 75% Denmark(1995–2006) 0.73 0.44 0.28 61% Finland(1995–2006) 1.41 1.45 −0.05 103% France(1995–2006) 0.19 0.09 0.10 49% Germany(1995–2005) 0.31 0.30 0.02 94% Greece(2000–2005) 0.00 0.01 −0.01 – Ireland(1997–2005) 13.60 14.60 −1.00 107% Italy(1995–2005) 0.40 0.26 0.15 64% Netherlands(1995–2006) 1.22 0.84 0.38 69% Norway(2001–2007) −0.18 −0.18 −0.01 −97% Portugal(1995–2005) −0.02 0.01 −0.03 62% Spain(1995–2005) 0.56 0.30 0.26 53% Sweden(1995–2005) 1.79 1.38 0.40 77% Median 0.555 0.353 0.058 68.89% Inter-quartilerange (0.875) (0.657) (0.256) (33.13%) EasternEurope Hungary(1995–2005) 0.09 −1.28 1.37 – Lithuania(2000–2005) 0.02 −0.02 0.04 −135% Poland(2000–2005) 0.08 0.04 0.04 55% Romania(2000–2006) −0.16 −0.86 0.70 −544% Slovakia(2000–2005) −0.19 −0.42 0.23 −220% Slovenia(1996–2005) 0.45 0.27 0.18 59% Estonia(1997–2005) 0.69 0.22 0.47 32% Median 0.080 −0.023 0.227 −51.44% Inter-quartilerange (0.339) (0.771) (0.472) (247.69%) CorrelationwithGDP −0.082 −0.063 −0.087 0.207

itisstrikingtonoticethat,whiletheinternational compo-nentispositiveonlyin3outof7countries,thedomestic componentisalwayspositiveand(withtheexceptionof Slovenia)biggerthantheinternationalcomponent.10_This

isconsistentwiththeideathat,whileatrendtowardsthe increaseinbusinessservicecontentofmanufacturing pro-ductionhasbeencharacterizingtheadvancedeconomies inthe70sthroughthe90s,ithasreachedEasternEuropean countriesbetweentheendofthe20thandthebeginning ofthe21stcentury.

To summarize, ourdecomposition suggests that the usualindices of business service offshoringwould tend tooverestimatetheactualincreaseinthedependenceon importedinputs,duetoaconcurrentsignificantchangein theorganizationofproductionofbusinessservicesusedin themanufacturingindustriesofmostEuropeancountries. Thisisevenmoreevidentinthecaseofoverallservices. Table3(leftpanel)showsthat!Offser_man ispositiveinall butfivecountries(Lithuania,Norway,Poland,Romaniaand Slovakia),butonlyin8countriestheinternational compo-nentcontributes tomorethan 50%ofthechangeinthe offshoringindex.Themedianfor((O·!M)ser_man)/(!Offser

man)

is 61.5% in Western Europe and −83.4% in Eastern Europe.Insomecountries,includingBelgium,France,Italy, NetherlandsandHungary,thecontributionof(M·!O)bs_man

10_It_is_worth_noting_that_!Offbs

manand((O·!M) bs man/!Off

bs

man)areonly mildlycorrelatedwithGDPandwithoppositesigns.

wasevenlargerthanthecontributionof(O·!M)bs_man.For example,inthecaseoflargeEUcountriessuchasItalyand France,theserviceoffshoringindexroseby0.49and0.36 percentagepointsrespectively,butthecontributionofthe growthofimportedservicesisjustabout0.23and0.17% points,respectively.Inafewcases,suchasFinland,Greece, Norway,Estonia,RomaniaandSlovenia,theinternational componentisevennegative,whilethedomestic compo-nentispositive.Thispatternmayevenbeconsistentwith asubstitution offoreignservice producerswith domes-ticones.Inotherwords,inmanycountriestheobserved growthintheshareofimportedservicesintotalproduction dependscruciallyonthegrowthofservicesusedin pro-duction,mostlikelyduetothefactthatfirmsoutsourced servicesthatwerepreviouslyproducedinternally. 4.2.2. Materialinputs

Ratherdifferentconsiderationsemergewhenwe con-sider the subset of material inputs: Offmat

man,t has been

growing in all but five countries(Table 3, right panel) andthischangecanbeattributedentirelytoan increas-ingimportanceofimportedintermediategoodsasashare ofthoseproduceddomestically,(O·!M)mat_man.Asamatter offact,inparallelwiththisrisingtrendofimported inter-mediatematerials,in allbuttwo countries(Polandand Romania)theshareofdomesticinputsintotal manufactur-ingproduction,(M·!O)mat_man,hasactuallydecreased.This mayrevealeitherthat firmshave internalizedactivities previouslyoutsourcedtodomesticsuppliers,orthatthese

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this article in press as: Castellani, D., et al., Can we really trust offshoring indices? Struct. Change Econ. Dyn.

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No. of Pages 14 D. Castellani et al. / Structural Change and Economic Dynamics xxx (2013) xxx– xxx Table3

Shift-sharedecompositionofoffshoringindicesforEuropeancountries:serviceandmaterialintermediateinputs. Country(timeperiod) Manufacturing(15–37)

Serviceinputs(percentagepointschange) Materialinputs(percentagepointschange)

!Offser

man (O·!M)serman (M·!O)manser ((O·!M)serman)/!Offserman) !Offmatman (O·!M)matman (M·!O)manmat ((O·!M)matman)/!Offmatman)

WesternEurope Austria(1995–2005) 1.09 0.89 0.20 82% 3.94 9.85 −5.91 250% Belgium(1995–2005) 0.51 0.04 0.47 8% −0.15 5.65 −5.80 – Denmark(1995–2006) 2.34 2.27 0.07 97% 2.63 6.53 −3.90 249% Finland(1995–2006) 0.60 −0.22 0.82 −37% 5.30 11.03 −5.74 208% France(1995–2006) 0.36 0.17 0.19 48% 3.47 5.99 −2.52 173% Germany(1995–2005) 0.53 0.50 0.03 95% 4.96 6.39 −1.43 129% Greece(2000–2005) 0.08 −0.02 0.10 −27% −0.32 2.74 −3.06 867% Ireland(1997–2005) 18.33 28.14 −9.81 154% −9.36 −2.73 −6.63 −29% Italy(1995–2005) 0.49 0.23 0.27 46% 1.60 3.90 −2.30 244% Netherlands(1995–2006) 1.44 0.70 0.74 49% −2.05 1.39 −3.45 68% Norway(2001–2007) −0.33 −0.36 0.03 −109% 3.57 5.52 −1.96 155% Portugal(1995–2005) 0.07 0.05 0.02 74% 2.59 6.77 −4.18 262% Spain(1995–2005) 0.96 0.75 0.22 77% 3.87 6.40 −2.53 166% Sweden(1995–2005) 2.17 1.93 0.25 89% 1.46 5.33 −3.87 365% Median 0.563 0.363 0.192 61.47% 2.606 5.821 −3.658 208.29% Inter-quartilerange (0.960) (0.811) (0.222) (69.71%) (3.535) (2.237) (2.826) (95.13%) EastermEurope Estonia(1997–2005) 0.12 −0.26 0.38 −229% 7.82 24.94 −17.12 319% Hungary(1995–2005) 0.62 0.23 0.38 38% 8.00 19.82 −11.82 248% Lithuania(2000–2005) −0.95 −0.88 −0.06 −94% −3.87 −5.14 1.26 −133% Poland(2000–2005) −0.01 0.02 −0.03 175% 3.88 3.60 0.28 93% Romania(1995–2006) −0.01 −0.15 0.13 – 2.04 4.68 −2.65 230% Slovakia(2000–2005) −0.53 −0.40 −0.13 −76% 3.39 6.92 −3.53 204% Slovenia(1996–2005) 0.08 −0.07 0.15 −91% 11.39 29.92 −18.53 263% Median −0.011 −0.146 0.134 −83.36% 3.876 6.920 −3.525 229.94% Inter-quartilerange (0.369) (0.310) (0.310) (102.22%) (5.196) (18.239) (13.284) (106.86%) CorrelationwithGDP −0.067 −0.084 0.112 0.042 −0.175 −0.216 0.203 0.549

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activitieshavebeensubstitutedbyforeignones.Thelatter interpretationisparticularlyconsistentwiththe observa-tionthatanincreasein(O·!M)mat_man isassociatedwitha decreasein(M·!O)mat_man.

To summarize, the share of intermediate business services,servicesandmaterialsintotalmanufacturing pro-ductionhasbeenontheriseinalargenumberofEuropean countries,butinthecaseofbusinessservices(andeven morefortheaggregateofallservices)thegrowthinimports istheresultofbothahigherintensityintheuseofsuch inputs bythemanufacturingindustry(due to outsourc-ing and structural change) and a higher propensity to importthem(relativetobuyingthemfromdomestic pro-ducers),whichisconsistentwithaprocessofoffshoring thosetasksabroad.Conversely,theevidencesuggeststhat the manufacturing industry is indeed increasingly buy-ingintermediate materialinputs fromforeignsuppliers, consistentwiththeidea thattheseactivities havebeen offshored.However,acloserlookatthedatacastssome generaldoubtsonthisinterpretationaswell.Infact,the medianvaluesofboth!Offmatmanandaresimilarin

West-ern and EasternEuropean countries. This suggests that the extent of material offshoring is similar in the two groups ofcountries. On thecontrary,onewould expect thatoffshoringhascharacterizedrelativelymoreadvanced economies. Instead, EasternEuropean countriesare not expectedtobeoffshoring, but,eventually,receiving off-shoredproduction.Thisisconfirmedbydataonindividual countries.Infact,thelargestincreaseintheratiobetween importedanddomesticallyproducedintermediate mate-rialshave beenregisteredin countries, suchasEstonia, HungaryandSlovenia,whichhavebeencharacterizedby amassiveflowofinwardforeigndirectinvestments(FDIs) overthelastdecade.Thisreflectsthefactthattheimport ofintermediatesoccursnotonlywhendomesticfirms off-shoreproductionabroad,butalsowhenforeignfirmslocate plants in a country and sourceintermediates from the headquartersorotherplantswithinthemultinational sup-plynetwork.

4.3. Serviceindustry

ResultsobtainedwhenweuseNACE50–74(services) as the using industries (j=ser), reported in Table 4 are qualitatively similar and reinforceour conclusions. Not surprisinglythevaluesofOffbs

ser,t0 andOff

ser

ser,t0 arelarger

(twiceasmuch)thanthesameindicesforthe manufactur-ingindustry,whileOffmat

ser,t0isnegligible,sincethematerial

inputsplay obviouslyaminorrolewhenproducing ser-vices.Similarly,!OffW_serispositiveformostcountriesand itislargerfor(business)serviceinputs.However,inthe caseoftheserviceindustry,thecontributionofthe domes-ticcomponent(M·!O)W_serseemsevenmorerelevantthan inthecaseofmanufacturing.Asamatteroffact,themedian contributionoftheimported(business)servicesratiotothe overallchangeintheoffshoringmeasureisbelow50%in WesternEuropeancountries,suggestingthatinmorethan halfofthesecountries,theincreasein!Offbs_serand!Offser_ser ismainlyduetotherisingshareofservicesexternalizedto domesticproducers.

5. Concludingremarks

Empiricalliteraturehasprovidedratherstrongevidence ofincreasingoffshoringactivities,bothforservice (includ-ing business service) and material inputs for different economiesinthelastdecades.Mostofthesecontributions haveusedindicesbasedonimportsofintermediatesfrom input-output tables. In this paper we investigate these indicesin greaterdetailand showthattheirvarianceis drivenbydifferentcomponents.Usingshift-share analy-siswedecomposethevariationoftheseindicesovertime intotwocomponents:(i)onecapturingthecontributionof achangeintheimportedinputsratioand(ii)one reflect-ingstructuralshiftsintheeconomy.Whiletheformermay actuallycaptureoffshoringofsometasks,thelatterresults fromachangeintheorganizationofproductionwithinthe nationalboundaries.

Inthisempiricalanalysisweusedatafor21European countriesoverthe1995–2006periodandshowthatthe shareofimportedinputsintotalproductionhasgrownin mostofthecountries.Inthecaseofbusinessserviceinputs, thisincreaseissignificantlyaffectedbytheraisingshare of(domesticallyproduced)servicesusedinmanufacturing production. This is particularly true for Eastern Euro-peancountries,wheretheimportedinputsratiohaseven decreased.AlsoinWesternEuropeancountries,however, thecontributionofstructuralshiftsindomestic produc-tionisquiterelevant:itsmedianvalueaccountsforabove 30%ofthetotalvariationofthebusinessoffshoringindex, reachingalmost40%inthecaseofaggregateservices.This findingprovidessupportingevidenceofanongoing ter-tiarizationprocess,which maywronglybeattributedto offshoringwhen trustingthecommonly appliedindices. Instead,inthecaseofmaterialoffshoringthereisevidence that theimported inputs ratio hasincreased,while the degreeofdomesticshiftsinproductionhasdecreased.This isconsistentwiththefactthatforeignsuppliershave sub-stituteddomesticones,whatcouldbeinterpretedatfirst sightthatoffshoringindicesmightbereliableinthiscase. However,thispatternismostpronouncedincountriessuch asEstonia,HungaryandSlovenia,whereincoming multi-nationals,ratherthantheoffshoringprocessofdomestic firmsmaybethedrivingforce.

Insum,ouranalysisraisesseriousconcernsaboutthe useofdataonimportsofintermediateinputstomeasure offshoringofbusinessservices,servicesormaterials.We submitthatitiscrucialtodistinguishtowhatextenthigher importsarerelatedtoamoreintensiveuseofsuchinputs intomanufacturingproduction,whichwouldresultfrom aprocessof(domestic)outsourcing,orwhetherthey actu-allyderivefromahigherpropensitytoimportrathersource thoseinputs domesticallyand thusreflecting offshoring ofsuchtasks.Forfutureeconometricanalysesthiswould suggestthatoneshouldadditionallycontrolfora struc-tural changeor domestic outsourcingcomponent when usingthediscussedindicestoestimatetheeffectsof off-shoring.Furthermore,itis necessarytobeaware ofthe factthatimporting intermediatesmaynot berelated to aprocessofoffshoringperse.Rather,ourevidence sug-geststhatinsomecountries,anincreaseinthepropensity toimportintermediatematerialgoodsmaybeduetothe

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this article in press as: Castellani, D., et al., Can we really trust offshoring indices? Struct. Change Econ. Dyn.

ARTICLE IN PRESS

No. of Pages 14 D. Castellani et al. / Structural Change and Economic Dynamics xxx (2013) xxx– xxx Table4

OffshoringindicesforEuropeancountries:serviceindustries. Country(timeperiod) Services(50–74)

Businessserviceinputs(percentagepointschange) Serviceinputs(percentagepointschange) Materialinputs(percentagepointschange) Offbs

ser !Offbsser ((O · !M)bsser)/(!Offserbs) Offserser !Offserser ((O · !M)serser)/(!Offserser) Offmatser !Offmatser ((O ·!M)matser)/(!Offmatser)

WesternEurope Austria(1995–2005) 1.17% 0.42 −77% 3.61% 1.06 −53% 2.36% 0.58 176% Belgium(1995–2005) 1.68% 1.12 69% 5.50% 2.26 72% 2.67% 0.76 239% Denmark(1995–2006) 0.09% 1.50 87% 4.12% 7.72 89% 2.51% 2.52 149% Finland(1995–2006) 0.73% 1.30 13% 2.36% 1.57 48% 2.25% 1.32 169% France(1995–2006) 0.63% 0.25 43% 1.68% 0.09 −210% 1.71% 0.40 190% Germany(1995–2005) 0.38% 0.54 87% 1.78% 1.77 69% 1.01% 0.33 196% Greece(2000–2005) 0.30% −0.02 −169% 3.47% 0.20 −3% 3.17% 0.15 568% Ireland(1997–2005) 5.28% 1.87 −611% 9.43% 6.68 43% 4.87% −1.32 −206% Italy(1995–2005) 0.42% 0.30 54% 1.66% 0.27 −31% 1.65% −0.14 7% Netherlands(1995–2006) 1.97% 0.32 −125% 4.74% 2.79 43% 3.42% −0.75 −45% Norway(2001–2007) 1.39% 0.30 118% 6.86% −0.72 −156% 4.23% 1.30 26% Portugal(1995–2005) 0.99% −0.17 −290% 2.71% −0.76 −188% 2.63% 0.53 315% Spain(1995–2005) 0.51% 0.71 65% 1.36% 1.31 44% 1.26% 0.29 125% Sweden(1995–2005) 1.15% 1.16 76% 3.13% 1.64 79% 3.83% 0.30 427% Median 0.86% 0.48 48.73% 3.30% 1.44 42.96% 2.57% 0.36 172.76% Inter-quartilerange (0.89%) (0.85) (187.77%) (2.66%) (1.92) (111.87%) (1.51%) (0.53) (178.09%) EasternEurope Estonia(1997–2005) 2.63% −0.51 −159% 6.96% 0.00 – 9.42% −2.66 214% Hungary(1995–2005) 2.64% −0.76 −118% 3.81% −0.07 −539% 3.04% 1.90 86% Lithuania(2000–2005) 0.69% −0.17 −230% 2.89% −1.38 −110% 3.98% 0.19 535% Poland(2000–2005) 0.34% 0.27 85% 2.23% −0.48 −129% 2.49% 0.63 124% Romania(2000–2006) 0.58% 0.36 −234% 1.17% 0.50 4% 6.67% 0.08 – Slovakia(2000–2005) 2.40% −0.73 −88% 4.05% 0.60 253% 3.01% −0.64 −238% Slovenia(1996–2005) 1.15% 0.80 112% 2.13% 1.40 64% 3.64% 1.33 695% Median 1.15% −0.17 −117.56% 2.89% 0.00 −53.03% 3.64% 0.19 169.12% Inter-quartilerange (1.88%) (0.94) (193.03%) (1.75%) (0.82) (173.01%) (2.30%) (1.27) (359.08%) CorrelationwithGDP −0.322 0.071 0.358 −38.28% −0.014 0.023 −0.518 −0.018 −0.114

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entryandexpansionofforeignmultinationalsinthe coun-try,whichimportintermediategoodsfromtheiraffiliates orsuppliersworldwide.Thisisrelevantifweusethe off-shoring indices toassess theeffects onproductivity or employment.Forexample,whiledomesticfirmsshutting downproductionactivitiesathomeandoffshoringthem abroad(substitutingitwithimportedintermediates)may havenegativeemploymenteffects,foreignfirms increas-ingproductioninthecountry(andthusimportingmore intermediates)mayhavepositiveemploymenteffects.In otherwords,thesameoffshoringindexmaycapture dif-ferent phenomenaunderdifferentcircumstances,which makesaninterpretationoftheeffectsquestionable.Asthe titleofourcontributionsuggest,thetake-homemessage ofouranalysisisthatweshouldnotreallytrustoffshoring indicesbasedoninput–outputdata.

Thesadsideofthestoryisthateveniftheseindices provideadistortedimageofoffshoring,westillhavetolive withthem.Themostnaturalalternative,whichismoving fromindirectevidenceofoffshoringtoadirectoneisstill farfrombeingsystematicallyavailabletoresearchers. Fea-siblealternativesrelyingonfirm-leveldataarescarceand mustbehandledwithcare.AsshowninWagner(2011), alsotheresearchpotentialofhithertoexistingfirm-level dataislimited:inordertoachieve informationbothon offshoringactivitiesandonthecharacteristicsoffirmsand theirperformance,itisstillnecessarytocombinedifferent datasources,someofthemexpresslymadeforthe pur-poseoftheresearch.11_More_generally,_the_fundamental

questionintheuseofsurveydata,exacerbatedbythe com-monpracticeofmergingdifferentdatasetscomingfrom differentsurveyswithdifferentsurveydesigns,isthatoften thepopulationofreferenceis,orbecomes,unclearandthe representativenessoftheresultsdoubtful.Moreover,since firm-leveldataareoftenavailableatthenationallevel,the questionoftheexternalvalidityoftheresultsatthe inter-national level mustbe alwaystakeninto consideration. Othersourcesoffirm-levelinformationonoffshoring,such as thefact-sheet data fromthe EuropeanRestructuring Monitor12_may_yield_supplemental_insights_but,_as_clearly

mentionedontheERMwebsite,thesedata,whicharebased oncompany announcements,are indicative rather than comprehensive.

Thehappysideofthestoryisthat,inspiteofthe ques-tionableinterpretationofoffshoringindices,input–output datastillrepresentafundamentalsourceofinformationon theextentofnationalandinternationallinkagesin produc-tionofmanufacturingandservicegoods.Wemightnotcall itoffshoring(always),butitstillshowssomethingthat can-notbeignored.Payingattentiontothedistinctionbetween internationaloffshoringandstructuralchangeindomestic activitiesmaystillprovideinterestinginsights.Moreover, thepossibilitiesofferedby multivariateanalysisto con-trolforpossibleconfoundersassociatedtooffshoring(e.g.

11_{Specifically,}_Wagner₍₂₀₁₁₎_draws_on_the_{“relocation}_of_economic activities”special-purposesurveyfromtheGermanFederalStatistical Office.

12_Consult_the_Eurofound_webpage_{http://www.eurofound.europa.eu/}

emcc/erm/index.htmforfurtherinformation.

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