Outsourcing/offshoring: Measures of Outsourcing
There are several approaches that can be used to measure the amount of outsourcing. One approach is to look at ‘‘processing trade,’’ which is defined by customs offices as the import of intermediate inputs for processing and subsequent reexport of the final product. This activity has grown enormously in China, for which Hong Kong often serves as an intermediary. For example, between 1988 and 1998, processing exports grew from $12.4 billion to $97.2 billion, or from about one-third to over one-half of total Chinese exports (Feenstra and Hanson 2004). This outward processing serves newly industrialized countries in Asia, but also developed countries such as the United States, Japan, and countries in Europe. Between the industrialized countries, too, there has been an increase in processing trade. Go¨rg (2000) reports on the increase in U.S. processing trade with the European Union between 1988 and 1994. He finds that U.S. processing imports into these countries (as a share of their total U.S. imports) increased slightly from 17.7 percent to 19.8 percent, but this same ratio increased more significantly from 13.7 percent to 23.7 percent for U.S. exports into the ‘‘periphery’’ countries of Greece, Ireland, Portugal and Spain.
Another way to measure foreign outsourcing is by the amount of imported intermediate inputs, which can be estimated by using the purchases of each type of input and multiplying it by the economywide import share for that input. Adding overall inputs used within each industry, we obtain estimated imported inputs,which can then be expressed relative to total intermediate input purchases. Feenstra and Hanson (1999) perform this calculation for U.S. manufacturing industries and find that imported inputs increased from 6.5 percent of total intermediate purchases in 1972 to 8.5 percent in 1979, and 11.6 percent in 1990. Campa and Goldberg (1997) make the same calculation for Canada, Japan, the United Kingdom,and theUnited States.TheUnited States shows a doubling of the share of imported inputs between 1975 and 1995 for all manufacturing, from 4.1 percent to 8.2 percent, though it is still at a lowlevel comparedwith other countries. Canada shows an increase in the share of intermediate inputs from 15.9 percent to 20.2 percent from 1974 to 1993, and the United Kingdom shows an especially large increase in this share, rising from 13.4 percent to 21.6 percent over the same years. The exception is Japan, where the share of imported inputs in manufacturing fell. With that single exception, the increased use of imported inputs was a characteristic feature ofmany industrial countries during the 1980s and 1990s.