The Impacts of Japanese and US Outsourcing on Chinese Firms

• Author: Hongyu Jia,Yibing Ding,Jingmei Ma
• DOI: http://doi.org/10.1111/rode.12210
• Date: 01 February 2016
• Published date: 01 February 2016

The Impacts of Japanese and US Outsourcing on

Chinese Firms

Jingmei Ma, Yibing Ding, and Hongyu Jia*

Abstract

This paper investigates the impact of manufacturing outsourcing to China from its two biggest trading

partners—the USA and Japan, for the period of 1990–2008. Both a fundamental model and an

augmented model are established, using export data of intermediate goods and two subcategories,

processed goods and parts and components (P&C). We find that output growth is positively correlated

with outsourcing, and outsourcing from the USA and Japan exerts lower effects than the average level.

Our results show that Chinese outsourcees not only access higher productivity than their domestic non-

outsourcee counterparts, but also generate spillover effects to the non-outsourcees. Moreover,

outsourcees of Japanese multinational corporations (MNCs) gain more technological advantage while

outsourcees of US origin act as a more effective external stimulus to increase production of non-

outsourcees in China.

1. Introduction

A long list of empirical literature emerged not long after the theoretical framework

of productivity advantage gained by outsourcing was developed. However, while

most studies explain the phenomenon by providing evidence from source countries

(Amiti and Wei, 2005, 2009; Egger and Egger, 2006; Tomiura, 2007; G€

org et al.,

2008; Morrison Paul and Yasar, 2009; McCann, 2011; Chongvilaivan et al.,2011; Lin

and Ma, 2012; L

opez, 2014; Schw€

orer, 2013),

1

little attention is paid to the

outsourcee manufacturers in the developing countries.

This paper examines the impact of manufacturing outsourcing to China from its

two biggest trading partners—the USA and Japan, for the period of 1990–2008.

Both the fundamental and augmented models of the production function are

established, based on the assumption that outsourcees possess higher marginal

productivity and exert spillover effects to domestic non-outsourcees. Positive

impacts are supported and outsourcing activities from both US and Japan

multinational corporations (MNCs) are found to have lower effects than the

average level in China. Moreover, the contribution from Japanese outsourcing is

higher than that from the USA, while outsourcees of US MNCs act as a more

effective stimulus to increase production of non-outsourcees than those of Japanese

origin.

*Ma: 138 Mailbox, Harbin University of Science and Technology, 52 Xuefu Rd., Nangang District,

Harbin, Heilongjiang, 150080, China. Tel: +86-(0)451-86390412; E-mail: maggiesisu@163.com. Ding: Jilin

University, 2699 Qianjin Rd., Changchun, 130012, China. Jia: Harbin University of Science and

Technology, Nangang District, Harbin, Heilongjiang, 150080, China. The authors wish to thank

anonymous referees for their helpful comments. The paper is sponsored by The National Natural Science

Foundation of China (No. 71303071).

Review of Development Economics, 20(1), 126–137, 2016

DOI:10.1111/rode.12210

©2016 John Wiley & Sons Ltd