Economic Integration, IT Intensity and the Aggregate Economic Impacts of IT Services Offshoring

Abstract

This study examines the economic contributions of offshore IT outsourcing (or IT offshoring for short) by using an extended Cobb-Douglas production function, and a panel data set from 20 OECD countries over the 2000 to 2006 period. Our analysis indicates that IT offshoring has made a positive and significant contribution to national productivity. Previous research on IT offshoring has relied on case studies and practitioners' perceptions. In addition, our analysis supports the idea of economic integration. Thus, it sheds some light on the debate about whether IT offshoring is harmful or beneficial to a national economy [4]. We also investigate total factor productivity and the moderating effect of IT intensity on the degree and impacts of IT offshoring. We apply feasible generalized least squares and the Durbin-Wu-Hausman endogeneity test to handle contextspecific estimation issues. The results suggest that to reap greater value from IT offshoring, developed countries need to establish IT capabilities by investing in IT capital.