DP6743 Offshoring and Immigrant Employment: Firm-level Theory and Evidence

Author(s): Giorgio Barba Navaretti, Giuseppe Bertola, Alessandro Sembenelli
Publication Date: March 2008
Date Revised: February 2012
Keyword(s): Foreign Direct Investment, Migration, Outsourcing, Skilled Labour
JEL(s): F2, J61
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=6743

We propose and solve a simple model of firm-level decisions to offshore production stages of lower skill intensity than that of activities that remain in the domestic location. In theory, offshoring is optimal only for the more productive among heterogeneous firms if it entails a fixed cost. In a large sample of Italian firms, offshoring - especially of intermediate production stages - is indeed more prevalent among firms that are larger and more productive, and is predicted by arguably relevant firm-level characteristics. We also document that offshoring decreases the share of unskilled employment in domestic production facilities as well as firms? propensity to employ immigrant workers, and we discuss the possible determinants and policy implication of the latter finding.