Offshoring: A Canadian Story

Off-shoring becomes an increasingly important strategy for Canadian businesses to compete in domestic and international markets. It is facilitated by advances in transportation and communications technologies and by the liberalization of trade and foreign direct investment (FDI) regimes in many countries. These changes allow firms to substitute cheap foreign suppliers for expensive domestic ones. They also permit firms to engage in vertical disintegration and offshore some of their activities to their foreign-based affiliates, or to third parties (through arms-length trade) in foreign countries. This paper has three major objectives. First discusses off-shoring business models and their potential economic benefits. Secondly, it documents the trends in Canadian businesses' off-shoring activities. Finally, it provides empirical evidence on whether Canadian businesses' productivity performance is enhanced by these activities, and on whether the productivity effect depends on the location of off-shoring.