University of Groningen Offshoring, functional specialization and economic performance Jiang, Aobo

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University of Groningen

Offshoring, functional specialization and economic performance

Jiang, Aobo

DOI:

10.33612/diss.126349119

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Publication date: 2020

Link to publication in University of Groningen/UMCG research database

Citation for published version (APA):

Jiang, A. (2020). Offshoring, functional specialization and economic performance. University of Groningen, SOM research school. https://doi.org/10.33612/diss.126349119

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543645-L-bw-Jiang 543645-L-bw-Jiang 543645-L-bw-Jiang 543645-L-bw-Jiang Processed on: 6-5-2020 Processed on: 6-5-2020 Processed on: 6-5-2020

Processed on: 6-5-2020 PDF page: 1PDF page: 1PDF page: 1PDF page: 1

Offshoring, Functional Specialization

and

Economic Performance

Aobo Jiang

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Publisher: University of Groningen Groningen, The Netherlands

Printed by: Ipskamp Printing, Enschede, The Netherlands ISBN: 978-94-034-2727-0

eISBN: 978-94-034-2728-7

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system of any nature, or transmitted in any form or by any means, electronic, mechanical, now known or hereafter invented, including photocopying or recording, without prior written permission of the author.

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Offshoring, Functional

Specialization and Economic

Performance

PhD thesis

to obtain the degree of PhD at the University of Groningen

on the authority of the Rector Magnificus Prof. C. Wijmenga

and in accordance with the decision by the College of Deans. This thesis will be defended in public on

Monday 8 June 2020 at 12.45 hours

by

Aobo Jiang

born on 26 May 1987 in Heilongjiang, China

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Supervisor

Prof. M.P. Timmer

Co-supervisor

Prof. G.J. de Vries

Assessment Committee

Prof. H. de Groot Prof. B. Merlevede Prof. R.C. Inklaar

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Acknowledgements

As I’m writing this acknowledgment, all memories of this wonderful journey from Septem-ber 2015 flashes through my mind. Doing a PhD is an upward spiral process. Even though the journey is tortuous, you are going up, and the future is bright. At the end of the day, you may not care so much about why you started the journey, but you will always be grateful for the journey that made you who you are and the people who walked together and shared wonderful memories with you.

The two people I am most grateful during this journey are my supervisors Marcel Timmer and Gaaitzen de Vries. Marcel and Gaaitzen, both of you have contributed greatly to the completion of this thesis and my personal development. Marcel, thank you for your supervision and support over the years. I value every conversation and meeting with you, not only because of the constructive suggestions and inspiration that you gave me and the knowledge that I learned from you, but also your attitudes towards research and your encouragement were the extra motivation to me. You gave me confidence and motivation in doing research when I need them the most. I’m also beyond grateful for the funding you generously provided to me every time when there was a good summer school or conference. Gaaitzen, you introduced me to the projects with Statistics Netherlands, which created the important opportunity of working in Statistics Netherlands for two chapters of this thesis. I benefited the most from interacting with and learning from you on a daily base. I’m very grateful for your continuous guidance and support throughout my PhD, which are truly important and invaluable to the completion of this thesis. You are not only a good supervisor who I can learn from and be inspired, but you are also someone who I can always have a nice conversation with. Your supervision style and personality made this four years’ supervision by and working with you a wonderful experience for me. Thank you very much for your optimism and patience. Marcel and Gaaitzen, I’m very lucky and honored to have both of you as my supervisors.

Special thanks go to the members of my thesis reading committee: Henri de Groot, Robert Inklaar, and Bruno Merlevede. Thank you all for taking your precious time reading this thesis and providing insightful and constructive suggestions. My gratitude also extends to all academic professionals who read chapters of this thesis and contributed to important suggestions and ideas. Financial support from the Dutch Science Foundation (NWO) is gratefully acknowledged (grant number 453-14-012).

Needless to say, PhD life is relatively a lonely journey. Everyone needs to be responsible for their own work, and struggle with their own share. With that being said, I believe it is very important and valuable if we are lucky enough to be surrounded by good friends and colleagues who can share happiness, pain and support each other.

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I am very glad to have amazing officemates who I spent every day with in the past years. Fred, you were my officemate since the very beginning of our PhD. Your personality and sense of humor definitely contributed to a very happy mood in the office. It’s a lot of fun when you are in the office, and exchanging thoughts with you is always enlightening. Kailan, you joined later and made the working life in the office even happier and equally more productive. Xin, I’m glad to have spent good time with you in the office the last few months of my time in Groningen.

GEM fellow PhDs are also very supportive and always being the source of happiness. Stefan, I’m very glad to know you from the beginning of the PhD. It’s really nice to have you as a good colleague and friend. We attended several external courses and conferences together. We had many interesting conversations over coffee breaks, lunch, dinner and other occasions. Thank you for always bringing joy and support to me. Bingqian, it’s very nice to know you from back to research master. It’s amazing to have a friend who is always willing to listen to me with patience and care. Ferdinand, your kindness, consideration and sense of humor are very impressive. Romina, it’s really nice to know you and become good friends. Thank you for the quality time we spent together sharing stories, laughing and supporting each other. Maite, I appreciate the way you bring joy to everyone, and thank you for the amazing cakes that you made for us. Timon, it’s always fun to talk with you about your weekend trips and that inspired me to explore the world more. I would also like to thank all the other GEM colleagues who I spent good time with, Wen, Xianjia, Daan, Nikos, Qiubin, Joeri, Eda and others, you are all amazing.

Special thanks go to SOM. Rina, Ellen and Arthur, all of you have provided me with important support and help throughout my PhD. You are always being extra considerate and helpful with every detail, which is very impressive. Kristian and Justin, you are amazing coordinators. I would also like to thank the secretaries of GEM department for providing valuable support during the past years.

I am lucky to have the opportunity to work at Statistic Netherlands as a research intern during my PhD. I would like to thank everyone in CBS who provided me with warm welcoming and support. Sandra, thank you for providing me with the work opportunity and creating a supportive working environment. Martin, your guidance helped me quickly adapt to an unfamiliar environment. Oscar, thank you for always listening to me and answering my questions patiently. Michael, thank you for generously sharing with me your knowledge on productivity estimation. Anna, you are always the first one who comes to my mind when I need help and someone to share. I cannot express enough how much I appreciate your support and friendship during the time I was in CBS and beyond that. Because of you, my time in Heerlen feels like being at home. My sincere appreciation also goes to everyone else in CBS who generously provided me with help and

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support, thank you all very much.

I want to thank all my Chinese friends who made life abroad a wonderful experience. Yao, thanks for your hospitality when I visited Venice and all our wonderful trips. Xiaoyao, it’s always fun having dinner and discussing interesting topics with you. Yan, thanks for always inspiring me to do sports and inviting me to have nice dinners at your place. Bingcong, even though we were not in the same city, we always made plans to meet up and those time together were always fun. Chengyong, I like your way of thinking and how I can share my thoughts with you directly without hesitation. I would also like to thank Ye Liu, Fan Wang, Yihao Yin, Yating Le, Shuo Zhang, Lipeng Ge, Li Jiang, Shili Chen, Binqi Tang, Suqing Wu, Suxiao Li, He Li, Ziwei Rao and others for your amazing company over the years.

Sieger, thank you for being a considerate and caring friend. It’s always nice to explore good restaurants in Groningen with you and having interesting conversations about culture and everything. Ajuan, it’s very nice to share thoughts with you and thank you for your sincerity and hospitality.

Zilong, thank you for your unconditional support and care over the years. Special thanks for spending time to help me with the LaTeX formatting of this book. It’s beyond amazing how you always put me first even when we were oceans away and you were also struggling with your own PhD life. It is the most unforgettable and precious memory sharing happiness and hardship with you throughout our PhD. Your way of thinking and optimism influenced and inspired me every day. Your words always made me calm and rational when I needed it the most. With your encouragement, I never lost confidence in myself, and dare to dream about the future. Thank you for everything.

Finally, I want to thank my parents Zhisheng Jiang and Liping Sun. All my personal development and achievements are based on the way you raised me up. I’m forever grateful of your support in all possible ways to help me achieve my dreams. Your faith in me and commitment to my education are the cause of my personal growth and development, and your continued support and dedication have made me who I am today. Thank you so much for everything. This book is for you.

最后，我想要感谢我的父亲姜志生和母亲孙立苹。所有我个人的发展和取得的成绩都是基于你们对于我的培养。我永远感激你们尽一切可能无条件的支持我去实现自己的梦想。你们对于我的信任和对我教育的投入是促成我个人成长和发展的原因。而你们持续的支持与付出使我成长为了今天的自己。非常感谢你们为我所做的一切。这本书献给你们。 vii

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List of Tables

2.1 Change in labor cost shares, 2007 over 1999 . . . 40 2.2 Average cost shares and average annual changes for manufacturing industries 44 2.3 Wage elasticities . . . 47 2.4 Implied elasticity of substitution . . . 47 2.5 The relation between trade, technology and business function shares-Manufacturing

industries . . . 49 2.6 The elasticity of demand for business function-Economic significance-Manufacturing

industries . . . 50 2.7 The relation between trade, technology and business function shares-Manufacturing

industries robustness checks . . . 51 2.8 The elasticity of demand for business function-Robustness checks . . . 51 2.9 The relation between trade, technology and business function shares-Manufacturing

industries, narrow offshoring measures distinguishing offshoring destina-tions . . . 53 2.10 The elasticity of demand for business function-Economic significance-Manufacturing

industries, distinguishing offshoring destinations . . . 54 2.11 The relation between trade, technology and business function shares-

non-Manufacturing industries . . . 56 2.12 The elasticity of demand for business function- non-Manufacturing industries 56 2.13 The relation between trade, technology and business function shares-Manufacturing

industries based on 3SLS estimator . . . 57

3.1 Functional specialization index, by region in 2014 . . . 83

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3.2 Offshoring shares by business function . . . 89

3.3 Offshoring propensity by industry and business function, 2007 ISS . . . . 92

3.4 Descriptive statistics of variables included in the regression analysis . . . . 95

3.5 OLS regression results by business function . . . 99

3.6 OLS regression results, extensions . . . 101

4.1 Question on employment by business function in the survey . . . 117

4.2 Coefficient estimates OLS and Wooldridge (2009) for value added produc-tion funcproduc-tion . . . 126

4.3 Productivity and price mark-ups . . . 127

4.4 Correlation various estimates of productivity and mark-ups . . . 128

4.5 Descriptive statistics . . . 129

4.6 Comparison between functional specialization and upstreamness . . . 130

4.7 Relation firm TFP and functional specialization . . . 132

4.8 Relation between mark-ups and functional specialization . . . 133

4.9 Factory-less goods producing firms and productivity . . . 134

4.10 Relation other measures firm performance and functional specialization . . 135

4.11 Relation TFP and functional specialization, including control variables . . 137

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List of Figures

1.1 The activities in a GVC . . . 2

1.2 Illustration value added in GVC . . . 7

2.1 Intermediate stage and final stage offshoring . . . 35

2.2 Share in domestic labor cost by activity-Manufacturing industries . . . 38

2.3 Labor cost shares in manufacturing industries, 2007 . . . 39

2.4 Int-Off by destination-Manufacturing industries in 2007 . . . 41

2.5 Fin-Off by destination-Manufacturing industries in 2007 . . . 42

2.6 Change in offshoring-Manufacturing industries, 1999-2007 . . . 43

3.1 Aggregate trends by business function for 2006 and 2014 . . . 80

3.2 Geographical concentration of business functions . . . 81

3.3 Choropleth maps of the FS index, by region in 2014 . . . 85

3.4 Growth rates in functional employment, 2006 to 2014 . . . 87

3.5 Correlation between offshoring exposure and growth of employment by business function . . . 97

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University of Groningen Offshoring, functional specialization and economic performance Jiang, Aobo