Outsourcing and U.S. Economic Growth: The Role of Imported
Intermediate Inputs
Christopher Kurz,Paul Lengermann
Federal Reserve Board of Governors*
World Congress on National Accounts – May 2008
*The views expressed below are those of the authors and should not be attributed to the Federal Reserve Board
Imported Intermediate Share of Intermediate Inputs
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
1997 1998 1999 2000 2001 2002 2003 2004 2005
Imported share of total intermediates
Imported share of manufacturing intermediates
Overview
• We define foreign outsourcing as trade in intermediates• Focus on outsourcing at the aggregate level• Estimate contribution to overall economic growth
• Utilize new data to perform growth accounting– Unpublished industry-commodity level BEA data on imported
intermediates and prices– Outsourcing is a manufacturing phenomenon and is accelerating
• Results 1997-2005– 15 percent of US growth attributed to imported intermediates,
and accelerated– 1/3 manufacturing growth from imported intermediates, mostly
in durables, and is accelerating– We find link between employment growth and outsourcing
growth
Data
Multiple sources required to perform growth accounting and estimate MFP
For industry or aggregate k:
• Gross output (Qk), intermediate inputs (Mk) and prices from BEA GDP-by-industry accounts.
• Capital stock (Kk) from BEA asset-by-industry net stocks—aggregated to capital services: IT & other
• Labor (Lk) based on hours worked and adjusted with CBP
Outsourcing DataImported intermediates and prices from published and
unpublished BEA data
• Data for 1997 to 2005 at the detailed industry-by-commodity level
• Value of imported inputs – Based on detailed input-output tables– Assumes value of imported commodities used by each industry is
the same as the ratio of total imports to domestic supply
• Prices for imported inputs– Concorded between BLS SITC import price indexes and BEA
commodity codes and constructed by BEA
We aggregate and concord the detailed industry-by-commodity data (272) and price data to the GDP-by-industry level (65) for industry or aggregate k.
The importance of outsourcing• The role of foreign outsourcing has increased
over the past several decades– Important in the production process– Important as a driver of increasing trade shares
• For each industry we construct a measure of “own-industry” imported intermediate use.
• We find the following stylized facts:– Most imports are in manufacturing: 85%– Intermediate imports large fraction of imports– Own-industry intermediate imports large
fraction of imports– Imported share of intermediates is growing– Large amount of heterogeneity
The importance of outsourcing…cont
• Intermediate imports large fraction of imports– 43 percent for total imports, 38 percent manufacturing– Shares roughly constant over our sample
• Own-industry intermediate imports large fraction of imports– 28 percent for total, 41 percent for manufacturing– Trending downward (23% and 33% in 2005)
• Imported share of intermediates is growing– 30 percent increase for all intermediates and 40
percent for manufacturing
Methodology: Measuring Intermediates
Intermediate inputs can be decomposed
• Xij is element of domestic input-output use table
• We calculate as a residual.
• The real growth rates of other-domestic inputs are calculated via chain-stripping from .
ki kjij
ownFk
otherDk
ownDk
otherFk
ownFkk
XM
MMMMM
,
,,,,
otherDkM ,
otherDkM ,
ˆkM̂
Measuring Intermediates
• Total Intermediates and Prices BEA GDP by industry accounts
• Imported Intermediates and prices from BEA imported intermediates data
• Assume domestic intermediates price is gross output price
• Calculate real growth rates
• Is calculated residually otherDkM ,
ˆ
Total Purchased Inputs (M) for sector/industry k
Domestic Intermediates (MD)
Foreign Intermediates (MF)
Own Foreign (MFown) Other Foreign (MF
other)Own Domestic (MD
own)Other Domestic (MD
other)
otherFk
ownFk
ownDk MMM ,,,
ˆ,ˆ,ˆ
MethodologyTwo approaches:
– Sectoral output Sk
• d is a Domar weight and sj is an cost share
– Gross output Qk
ki
otherFi
Mi
ownFi
Mii
Kii
Lii
ki
otherDk
Mkk
otherDi
Mi
otherFi
Mi
ownFi
Mii
Kii
Liii
ownDkkk
MsMsKsLsPFMdMsS
MsMsMsKsLsSPFM
MQS
otherFi
ownFi
otherDk
otherDi
otherFi
ownFi
,,,
,,,
,
ˆˆˆˆˆˆˆ
)ˆˆˆˆˆ(ˆˆ
ˆˆˆ
,,,
,,,
)ˆˆˆˆˆˆ(ˆˆ,,,,
,,,, ownDi
Mi
otherDi
Mi
otherFi
Mi
ownFi
Mii
Kii
Liii MsMsMsMsKsLsSPFM
ownDi
otherDi
otherFi
ownFi
Results—sources of growth
Sectoral IT Other Purchased Domestic Purchased Foreign Inputs:Output MFP Capital2 Capital3 Labor Inputs: Other Own
(1) (2) (3) (4) (5) (6) (7) (8)
A. 1997 to 20051. Private industries 3.4 1.6 .6 .5 .3 -.1 .4 .16. Manufacturing 1.9 1.9 .2 .1 -.9 .1 .4 .27. Durable goods 2.8 2.9 .2 .1 -1.0 -.1 .5 .38. Nondurable goods .3 .5 .1 .0 -.6 .1 .2 .09. Services-producing industries 3.5 1.2 .7 .6 .6 .1 .2 .0
C. 2003 to 20051. Private industries 3.2 2.4 .3 .2 .2 -.5 .5 .1
D. Difference in Annual Averages, (2003 to 2005) vs. (1997 to 2002)
1. Private industries -.3 1.3 -.5 -.5 -.1 -.7 .2 .0
Table 4Sources of growth in sectoral output
for U.S. private industry and major industry groups1
Results—sources of growth
• 15 percent of output growth stems from imported intermediates; 30 percent in manufacturing
Sectoral IT Other Purchased Domestic Purchased Foreign Inputs:Output MFP Capital2 Capital3 Labor Inputs: Other Own
(1) (2) (3) (4) (5) (6) (7) (8)
A. 1997 to 20051. Private industries 3.4 1.6 .6 .5 .3 -.1 .4 .16. Manufacturing 1.9 1.9 .2 .1 -.9 .1 .4 .27. Durable goods 2.8 2.9 .2 .1 -1.0 -.1 .5 .38. Nondurable goods .3 .5 .1 .0 -.6 .1 .2 .09. Services-producing industries 3.5 1.2 .7 .6 .6 .1 .2 .0
C. 2003 to 20051. Private industries 3.2 2.4 .3 .2 .2 -.5 .5 .1
D. Difference in Annual Averages, (2003 to 2005) vs. (1997 to 2002)
1. Private industries -.3 1.3 -.5 -.5 -.1 -.7 .2 .0
Table 4Sources of growth in sectoral output
for U.S. private industry and major industry groups1
Results—sources of growth
• 15 percent of the of output growth stems from imported intermediates
• The contribution has accelerated
Sectoral IT Other Purchased Domestic Purchased Foreign Inputs:Output MFP Capital2 Capital3 Labor Inputs: Other Own
(1) (2) (3) (4) (5) (6) (7) (8)
A. 1997 to 20051. Private industries 3.4 1.6 .6 .5 .3 -.1 .4 .16. Manufacturing 1.9 1.9 .2 .1 -.9 .1 .4 .27. Durable goods 2.8 2.9 .2 .1 -1.0 -.1 .5 .38. Nondurable goods .3 .5 .1 .0 -.6 .1 .2 .09. Services-producing industries 3.5 1.2 .7 .6 .6 .1 .2 .0
C. 2003 to 20051. Private industries 3.2 2.4 .3 .2 .2 -.5 .5 .1
D. Difference in Annual Averages, (2003 to 2005) vs. (1997 to 2002)
1. Private industries -.3 1.3 -.5 -.5 -.1 -.7 .2 .0
Table 4Sources of growth in sectoral output
for U.S. private industry and major industry groups1
Results—sources of growth
• 15 percent of the of output growth stems from imported intermediates
• The contribution has accelerated• Disaggregation of intermediates inputs would
miss contribution from foreign intermediates
Sectoral IT Other Purchased Domestic Purchased Foreign Inputs:Output MFP Capital2 Capital3 Labor Inputs: Other Own
(1) (2) (3) (4) (5) (6) (7) (8)
A. 1997 to 20051. Private industries 3.4 1.6 .6 .5 .3 -.1 .4 .16. Manufacturing 1.9 1.9 .2 .1 -.9 .1 .4 .27. Durable goods 2.8 2.9 .2 .1 -1.0 -.1 .5 .38. Nondurable goods .3 .5 .1 .0 -.6 .1 .2 .09. Services-producing industries 3.5 1.2 .7 .6 .6 .1 .2 .0
C. 2003 to 20051. Private industries 3.2 2.4 .3 .2 .2 -.5 .5 .1
D. Difference in Annual Averages, (2003 to 2005) vs. (1997 to 2002)
1. Private industries -.3 1.3 -.5 -.5 -.1 -.7 .2 .0
Table 4Sources of growth in sectoral output
for U.S. private industry and major industry groups1
Results—sources of growth in manufacturing
Gross IT OtherOutput MFP Capital2 Capital3 Labor Other Own Other Own
(1) (2) (3) (4) (5) (6) (7) (8) (9)
A. 1997 to 2005Durable goods:
1. Wood products 0.6 0.6 0.0 0.0 -0.2 0.4 -0.4 0.2 0.02. Nonmetallic mineral products 1.1 0.6 0.1 0.2 -0.3 0.4 0.0 0.2 0.13. Primary metals -1.0 0.9 0.0 -0.1 -0.9 -0.8 -0.5 0.2 0.24. Fabricated metal products -0.5 0.8 0.1 0.1 -0.6 -0.6 -0.3 0.2 0.05. Machinery -0.1 0.7 0.3 0.2 -1.0 -0.7 -0.1 0.4 0.16. Computer and electronic products 7.7 7.9 0.1 0.1 -1.2 -0.3 0.5 0.3 0.27. Elect. equip., appliances, & components -1.0 1.2 0.0 -0.1 -1.1 -1.0 -0.3 0.2 0.18. Motor vehicles, bodies and trailers, & parts 2.0 0.5 0.1 0.1 -0.4 0.5 0.2 0.7 0.49. Other transportation equipment 0.7 0.5 0.2 0.1 -1.2 0.7 -0.6 0.8 0.1
10. Furniture and related products 2.2 1.2 0.1 0.2 -0.5 0.8 0.0 0.4 0.011. Miscellaneous manufacturing 3.3 2.6 0.1 0.0 -0.8 0.8 0.1 0.4 0.1
Nondurable goods:12. Food and beverage and tobacco products 0.7 0.0 0.1 -0.1 -0.1 0.8 -0.1 0.1 0.013. Textile mills and textile product mills -3.4 1.5 0.0 -0.2 -1.8 -1.5 -1.4 0.0 -0.114. Apparel and leather and allied products -9.7 1.3 0.0 -0.1 -3.2 -6.5 -0.7 -0.4 -0.115. Paper products -1.4 0.4 0.0 -0.2 -0.8 -0.5 -0.5 0.1 0.016. Printing and related support activities -2.1 0.6 0.2 0.1 -1.0 -1.5 -0.4 0.0 0.017. Petroleum and coal products -0.2 -0.3 0.1 -0.1 -0.1 -0.4 -0.3 0.4 0.418. Chemical products 0.4 0.8 0.2 0.1 -0.2 -0.4 -0.3 0.2 0.119. Plastics and rubber products 0.8 0.7 0.1 0.2 -0.5 0.0 0.0 0.4 0.0
Table 6Sources of growth for U.S. manufacturing industries1
Purchased Foreign InputsPurchased Domestic Inputs
Results—sources of growth in manufacturing
Gross IT OtherOutput MFP Capital2 Capital3 Labor Other Own Other Own
(1) (2) (3) (4) (5) (6) (7) (8) (9)
A. 1997 to 2005Durable goods:
1. Wood products 0.6 0.6 0.0 0.0 -0.2 0.4 -0.4 0.2 0.02. Nonmetallic mineral products 1.1 0.6 0.1 0.2 -0.3 0.4 0.0 0.2 0.13. Primary metals -1.0 0.9 0.0 -0.1 -0.9 -0.8 -0.5 0.2 0.24. Fabricated metal products -0.5 0.8 0.1 0.1 -0.6 -0.6 -0.3 0.2 0.05. Machinery -0.1 0.7 0.3 0.2 -1.0 -0.7 -0.1 0.4 0.16. Computer and electronic products 7.7 7.9 0.1 0.1 -1.2 -0.3 0.5 0.3 0.27. Elect. equip., appliances, & components -1.0 1.2 0.0 -0.1 -1.1 -1.0 -0.3 0.2 0.18. Motor vehicles, bodies and trailers, & parts 2.0 0.5 0.1 0.1 -0.4 0.5 0.2 0.7 0.49. Other transportation equipment 0.7 0.5 0.2 0.1 -1.2 0.7 -0.6 0.8 0.1
10. Furniture and related products 2.2 1.2 0.1 0.2 -0.5 0.8 0.0 0.4 0.011. Miscellaneous manufacturing 3.3 2.6 0.1 0.0 -0.8 0.8 0.1 0.4 0.1
Nondurable goods:12. Food and beverage and tobacco products 0.7 0.0 0.1 -0.1 -0.1 0.8 -0.1 0.1 0.013. Textile mills and textile product mills -3.4 1.5 0.0 -0.2 -1.8 -1.5 -1.4 0.0 -0.114. Apparel and leather and allied products -9.7 1.3 0.0 -0.1 -3.2 -6.5 -0.7 -0.4 -0.115. Paper products -1.4 0.4 0.0 -0.2 -0.8 -0.5 -0.5 0.1 0.016. Printing and related support activities -2.1 0.6 0.2 0.1 -1.0 -1.5 -0.4 0.0 0.017. Petroleum and coal products -0.2 -0.3 0.1 -0.1 -0.1 -0.4 -0.3 0.4 0.418. Chemical products 0.4 0.8 0.2 0.1 -0.2 -0.4 -0.3 0.2 0.119. Plastics and rubber products 0.8 0.7 0.1 0.2 -0.5 0.0 0.0 0.4 0.0
Table 6Sources of growth for U.S. manufacturing industries1
Purchased Foreign InputsPurchased Domestic Inputs
•Contribution of domestic intermediates mostly negative; imported intermediates mostly positive
Results—sources of growth in manufacturing
Gross IT OtherOutput MFP Capital2 Capital3 Labor Other Own Other Own
(1) (2) (3) (4) (5) (6) (7) (8) (9)
A. 1997 to 2005Durable goods:
1. Wood products 0.6 0.6 0.0 0.0 -0.2 0.4 -0.4 0.2 0.02. Nonmetallic mineral products 1.1 0.6 0.1 0.2 -0.3 0.4 0.0 0.2 0.13. Primary metals -1.0 0.9 0.0 -0.1 -0.9 -0.8 -0.5 0.2 0.24. Fabricated metal products -0.5 0.8 0.1 0.1 -0.6 -0.6 -0.3 0.2 0.05. Machinery -0.1 0.7 0.3 0.2 -1.0 -0.7 -0.1 0.4 0.16. Computer and electronic products 7.7 7.9 0.1 0.1 -1.2 -0.3 0.5 0.3 0.27. Elect. equip., appliances, & components -1.0 1.2 0.0 -0.1 -1.1 -1.0 -0.3 0.2 0.18. Motor vehicles, bodies and trailers, & parts 2.0 0.5 0.1 0.1 -0.4 0.5 0.2 0.7 0.49. Other transportation equipment 0.7 0.5 0.2 0.1 -1.2 0.7 -0.6 0.8 0.1
10. Furniture and related products 2.2 1.2 0.1 0.2 -0.5 0.8 0.0 0.4 0.011. Miscellaneous manufacturing 3.3 2.6 0.1 0.0 -0.8 0.8 0.1 0.4 0.1
Nondurable goods:12. Food and beverage and tobacco products 0.7 0.0 0.1 -0.1 -0.1 0.8 -0.1 0.1 0.013. Textile mills and textile product mills -3.4 1.5 0.0 -0.2 -1.8 -1.5 -1.4 0.0 -0.114. Apparel and leather and allied products -9.7 1.3 0.0 -0.1 -3.2 -6.5 -0.7 -0.4 -0.115. Paper products -1.4 0.4 0.0 -0.2 -0.8 -0.5 -0.5 0.1 0.016. Printing and related support activities -2.1 0.6 0.2 0.1 -1.0 -1.5 -0.4 0.0 0.017. Petroleum and coal products -0.2 -0.3 0.1 -0.1 -0.1 -0.4 -0.3 0.4 0.418. Chemical products 0.4 0.8 0.2 0.1 -0.2 -0.4 -0.3 0.2 0.119. Plastics and rubber products 0.8 0.7 0.1 0.2 -0.5 0.0 0.0 0.4 0.0
Table 6Sources of growth for U.S. manufacturing industries1
Purchased Foreign InputsPurchased Domestic Inputs
● Contribution of domestic intermediates mostly negative; imported intermediates mostly positive● Within durables, domestic and foreign intermediates both contribute
Results—sources of growth in manufacturing
● Contribution of domestic intermediates mostly negative; imported intermediates mostly positive● Within durables, domestic and foreign intermediates both contribute ● Acceleration in output growth highly correlated with acceleration in imported intermediates
Gross IT OtherOutput MFP Capital2 Capital3 Labor Other Own Other Own
(1) (2) (3) (4) (5) (6) (7) (8) (9)B. Difference in Annual Averages, (2003 to 2005) vs. (1997 to 2002)
Durable goods:1. Wood products 0.5 0.6 0.0 -0.1 0.3 0.3 -0.3 0.1 -0.22. Nonmetallic mineral products 1.4 0.9 -0.2 -0.3 0.1 0.4 0.2 0.3 0.13. Primary metals 3.1 0.0 -0.1 -0.1 0.6 -0.1 1.1 1.0 0.74. Fabricated metal products -0.4 2.4 -0.1 -0.2 0.8 -2.5 -0.8 0.0 0.05. Machinery 6.1 2.7 -0.4 -0.3 0.8 2.4 0.1 0.8 0.26. Computer and electronic products -0.4 -1.1 -0.5 -0.3 -0.2 0.2 -0.1 0.9 0.77. Electrical equipment, appliances, and components1.6 -0.1 -0.1 -0.3 -0.4 1.5 0.2 0.6 0.18. Motor vehicles, bodies and trailers, and parts -1.6 -1.0 -0.1 -0.2 0.0 -0.8 -0.4 0.5 0.29. Other transportation equipment 2.1 -0.2 -0.3 -0.2 -0.7 2.5 0.1 0.9 0.0
10. Furniture and related products 0.5 3.3 -0.1 -0.3 -0.2 -2.0 -0.2 -0.1 0.011. Miscellaneous manufacturing -1.1 2.2 -0.1 -0.1 0.7 -2.7 -0.5 -0.3 -0.2
Nondurable goods:12. Food and beverage and tobacco products 0.1 0.4 -0.1 -0.1 -0.2 -0.4 0.5 0.1 -0.113. Textile mills and textile product mills -1.7 3.1 -0.1 -0.2 -0.1 -3.1 -1.3 0.1 -0.214. Apparel and leather and allied products 1.3 1.0 -0.1 -0.2 -1.3 1.5 0.4 0.0 0.115. Paper products -0.7 3.3 -0.1 -0.1 -0.3 -3.3 -0.5 0.2 0.116. Printing and related support activities -1.4 2.4 -0.2 -0.2 -0.3 -2.5 -0.5 -0.1 0.017. Petroleum and coal products -3.1 -0.1 0.0 0.1 0.0 -0.3 -0.9 -1.3 -0.718. Chemical products -0.8 0.4 -0.3 -0.2 -0.2 -1.6 0.5 0.4 0.219. Plastics and rubber products -0.7 1.0 -0.1 -0.4 0.0 -1.4 -0.2 0.4 0.0
Table 6Sources of growth for U.S. manufacturing industries1
Purchased Domestic Inputs Purchased Foreign Inputs
Results—sources of growth in manufacturing
●Output growth remained elevated for computers due to contribution from pickup in imported intermediates
Gross IT OtherOutput MFP Capital2 Capital3 Labor Other Own Other Own
(1) (2) (3) (4) (5) (6) (7) (8) (9)B. Difference in Annual Averages, (2003 to 2005) vs. (1997 to 2002)
Durable goods:1. Wood products 0.5 0.6 0.0 -0.1 0.3 0.3 -0.3 0.1 -0.22. Nonmetallic mineral products 1.4 0.9 -0.2 -0.3 0.1 0.4 0.2 0.3 0.13. Primary metals 3.1 0.0 -0.1 -0.1 0.6 -0.1 1.1 1.0 0.74. Fabricated metal products -0.4 2.4 -0.1 -0.2 0.8 -2.5 -0.8 0.0 0.05. Machinery 6.1 2.7 -0.4 -0.3 0.8 2.4 0.1 0.8 0.26. Computer and electronic products -0.4 -1.1 -0.5 -0.3 -0.2 0.2 -0.1 0.9 0.77. Electrical equipment, appliances, and components1.6 -0.1 -0.1 -0.3 -0.4 1.5 0.2 0.6 0.18. Motor vehicles, bodies and trailers, and parts -1.6 -1.0 -0.1 -0.2 0.0 -0.8 -0.4 0.5 0.29. Other transportation equipment 2.1 -0.2 -0.3 -0.2 -0.7 2.5 0.1 0.9 0.0
10. Furniture and related products 0.5 3.3 -0.1 -0.3 -0.2 -2.0 -0.2 -0.1 0.011. Miscellaneous manufacturing -1.1 2.2 -0.1 -0.1 0.7 -2.7 -0.5 -0.3 -0.2
Nondurable goods:12. Food and beverage and tobacco products 0.1 0.4 -0.1 -0.1 -0.2 -0.4 0.5 0.1 -0.113. Textile mills and textile product mills -1.7 3.1 -0.1 -0.2 -0.1 -3.1 -1.3 0.1 -0.214. Apparel and leather and allied products 1.3 1.0 -0.1 -0.2 -1.3 1.5 0.4 0.0 0.115. Paper products -0.7 3.3 -0.1 -0.1 -0.3 -3.3 -0.5 0.2 0.116. Printing and related support activities -1.4 2.4 -0.2 -0.2 -0.3 -2.5 -0.5 -0.1 0.017. Petroleum and coal products -3.1 -0.1 0.0 0.1 0.0 -0.3 -0.9 -1.3 -0.718. Chemical products -0.8 0.4 -0.3 -0.2 -0.2 -1.6 0.5 0.4 0.219. Plastics and rubber products -0.7 1.0 -0.1 -0.4 0.0 -1.4 -0.2 0.4 0.0
Table 6Sources of growth for U.S. manufacturing industries1
Purchased Domestic Inputs Purchased Foreign Inputs
Outsourcing, Productivity, and Employment
• Test basic relationship between foreign outsourcing &– productivity growth– employment growth
• Outsourcingit is a measure of foreign outsourcing
– Growth in real outsourcing (own or other)– Change in share of outsourcing (own or other)
• We find little significance in the relationship between outsourcing growth and productivity growth
• There is a significant relationship between outsourcing and employment growth
itititit XgOutsourcinY ˆ
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