This work analyses the effect of the global sourcing of intermediate goods on productivity growth. To identify the impact of global sourcing, we employ the methodology proposed in a different context by Rajan and Zingales (1998).
In particular we interact the length and the width of sectoral production chains with a measure of the intensity of countries’ intermediate imports. We find evidence indicating that off-shoring significantly increases labour productivity and total factor productivity at the sector level in countries that rely on global sourcing.
The driver of total factor productivity growth depends on the structure of the global value chain that intermediates are sourced from: long chains trigger technology improvements while wide chains cause a reallocation of resources towards more productive firms within the same sector.