Off-shoring, specialization and R&D

This paper investigates whether off-shoring promotes technological specialization by reallocating resources towards high-tech industries and/or stimulating within industry R&D. Using data for the USA, Japan and Europe, our results show that material off-shoring promotes high-tech specialization through input reallocation between sectors, while service off-shoring favors technologically advanced production by increasing within-industry productivity, mainly via its positive impact on R&D. Conversely, we find that the increasing fragmentation of core production tasks, captured by narrow off-shoring, has adverse effects on technological specialisation, which suggests that this type of off-shoring is mainly pursued for cost-reduction motives.