Impact Of Outsourcing On Domestic Labour Market

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The influence of transnational enterprises has been growing significantly for the last two decades. This paper will assess the spill over effects of offshoring, as process of Global Value chains. Outsourcing of goods and services production abroad, or offshoring, give opportunity for countries to transfer production of intermediate and secondary goods abroad mainly due to cost saving. Belgium is a country with one of the biggest share of imported intermediate inputs in total intermediate inputs. Being an open economy, Offshoring plays an important part in economy of Belgium. While a solid amount of literature is focused on the positive aspects of offshoring, such as increase in productivity, this paper is focused on employment effects. The aim of the paper is to estimate the effects of offshoring in market service sector, using industry-level data on domestic employment of 34 business service sector firms in Belgium in the period from 1996 to 2006. The paper will use instrumental variables and attempt to look at endogeneity of offshoring. The main hypothesis is that service offshoring negatively affects domestic labour market. Literature review Offshoring is defined as a “relocation of jobs and production to a foreign country. The relocated jobs and production could be at a foreign office of the same multinational company or at a separate company located abroad” (Garner, 2003:6). Firms tend to transfer production of intermediate goods and business services to least

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