1 Pre-conference at Michigan (March 2004) Foreign Outsourcing and Firm-level Characteristics: Evidence from Japanese Manufacturers Eiichi Tomiura

2 Purposes of our research  Already studied, but a vital topic, and all previous evidence is either business anecdotes or aggregate data.  Directly measuring FO, explicitly distinguished from domestic outsourcing, at the firm level, from a comprehensive sample.  Discussing its relationship with various firm- level characteristics. (Who choose FO?)

3 Previous studies  Imported inputs in input-output tables (Campa and Golberg (1996), Feenstra and Hanson(1997))  Foreign trade of parts & components (Yeats(2001))  Processing trade, foreign trade zones (Feenstra et al.(2000))  Micro data (Swenson (2000), Gorg and Hanley (2003))  Theoretical models of incomplete contract (Antras (2003), Grossman and Helpman (2002))

4 Our firm-level data  Survey conducted by MITI in 1998  118,300 firms in all manufacturing industries  Without firm-size thresholds  Including firms without outsourcing  “contracting out of production or processing”

5 Number of Firms

6 Firm size

7 Empirical models  Heckman’s two-step estimation

8 Estimation results  significant (Selection by Human skill (or Firm size) & Foreign business experience).  Productivity (+) (esp. FO)  IT (+) (both FO & DO)  K/L, H/L (  ) (esp. FO)  R&D (+) (both FO & DO)  Firm size (  ) (esp. FO)

9 Concluding remarks  Confirmed previous aggregate findings by firm-level data, and revealed previously unnoticed inter-firm heterogeneity.  International comparison necessary. But, no other comprehensive firm-level data are currently available.