Offshoring and Firm Performance: Evidence from the Italian Manufacturing Industry

Abstract

The fundamental question of whether offshoring is value enhancing and, more specifically, whether Italian manufacturing firms that undertake offshoring benefit from higher productivity and profitability is explored. Using data from the tenth wave of the “Survey on Manufacturing Firms” conducted by Unicredit-Capitalia, it was found that, compared with domestic firms, firms relocating activities to a foreign country have different characteristics, and “better” firms might self-select into offshoring decision. To disentangle the effect of offshoring on firms' performances from the effect of firm characteristics, several variants of propensity score matching are used. A mild and insignificant positive effect of offshoring on profitability was found and also evidence of a statistically significant positive effect of offshoring on productivity.