Does offshoring of materials and business services affect employment? Evidence from a small open economy

The fear of massive job losses has prompted a fast-growing literature on offshoring and its impact on employment in advanced economies. This article examines the situation for Belgium. It improves the offshoring intensity measure by computing a volume measure of the share of imported intermediates in output, and it is among the first to address both materials and business services offshoring to high wage and low wage countries. Estimations of static and dynamic industry-level labour demand equations augmented by offshoring intensities do not reveal a significant impact of either materials or business services offshoring on total employment for Belgium between 1995 and 2003. This result holds for both the manufacturing sector and the service sector and it proves robust to splitting the manufacturing sector into high technology and low technology industries.