Offshoring, outsourcing and productivity evidence from firms located in Philippine Economic Zone (PEZA) in Cavite, Philippines / Willington O. Onuh.

An UFRO funded research.

Much has been written about offshore sourcing and its effects on the developed economies especially with respect to moving jobs overseas. Recent findings in the literature indicate possible link between offshoring, outsourcing and productivity. This possibility raises important questions on the extent of productivity impacts of offshoring and domestic outsourcing on firms located in Philippine Economic Zone. Theoretical literature suggests that when firms offshore or outsource non-core activities to specialist firm providers, higher productivity may accrue to the outsourcing or offshoring firms due to high quality inputs and superior reallocation of resources. Using Generalized Moments of Moments (GMM) estimator to control the endogeneity of variables, estimation results show that offshoring has a positive and significant impact on productivity. However, foreign-owned firms and Filipino-owned firms do not benefit productivity wise when they engage in domestic outsourcing which raises family concerns on the government local content requirement for firms located in the economic zone.