Bu sian, Di k; Nagengas , A ne J.
A icle — Published Ve sion
OFFSHORING AND THE POLARIZATION OF THE DEMAND
FOR CAPITAL
Economic Inqui y
P o ided in Coope a ion wi h:
John Wiley & Sons
Sugges ed Ci a ion: Bu sian, Di k; Nagengas , A ne J. (2019) : OFFSHORING AND THE POLARIZATION
OF THE DEMAND FOR CAPITAL, Economic Inqui y, ISSN 1465-7295, Wiley Pe iodicals, Inc., Bos on,
USA, Vol. 58, Iss. 1, pp. 260-282,
h ps://doi.o g/10.1111/ecin.12828
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OFFSHORING AND THE POLARIZATION OF THE DEMAND FOR CAPITAL
DIRK BURSIAN and ARNE J. NAGENGAST∗
In he pas decades, he impo ance o di e en capi al goods has g adually changed,
which has led o a s uc u al shi in he composi ion o he demand o capi al a he
expense o mo e adi ional capi al inpu s such as machine y and equipmen . In his
pape , we ocus on a no el d i e o his de elopmen by analyzing he e ec o o sho ing
on he demand o capi al by asse class using a ich coun y-sec o panel da ase .
Es ima ing a sys em o ac o demand equa ions, we documen ha o sho ing educes
he ela i e demand o non-ICT capi al, he eby pola izing he demand o capi al. (JEL
F14, F62, E22)
I. INTRODUCTION
Mos mac oeconomic heo y is based on
agg ega e p oduc ion unc ions ha combine
he homogeneous inpu ac o s capi al and labo
o gene a e economy-wide ou pu . Howe e ,
inpu ac o s a e ypically cha ac e ized by a
subs an ial deg ee o he e ogenei y. The capi al
s ock o an economy, o ins ance, ep esen s
an agg ega e comp ising mul iple asse ypes
ha di e along se e al dimensions such as
quali y, he economic li e cycle, o asse -speci ic
p oduc i i y. In he pas decades, he impo ance
o di e en asse ypes has g adually changed.
This is illus a ed in Figu e 1 using da a om EU
KLEMS (Jäge 2017).
The igu e shows he e olu ion o g oss- ixed
capi al o ma ion ela ed o in o ma ion and
communica ion echnologies (ICT), non-ICT,
and esea ch and de elopmen (R&D) as he
∗The au ho s would especially like o hank Thomas
Kne sch and Philipp Meinen o aluable discussions. We
would also like o hank he edi o , A eendam Chanda, and
wo anonymous e e ees o insigh ul commen s ha g ea ly
imp o ed he pape . Commen s and sugges ions by S e an
Goldbach, Thomas Hae el, Ma hias Ha mann, Thomas
McClymon , Ma kus Ro h, and semina pa icipan s a he
Deu sche Bundesbank a e g a e ully acknowledged. The
iews exp essed in his pape a e hose o he au ho s and do
no necessa ily e lec hose o he Deu sche Bundesbank.
Bu sian: Economis , DG Economics, Deu sche Bundes-
bank, 60431, F ank u am Main, Ge many; Phone
+49 69 9566 8879, Fax +49 69 9566 6734, E-mail
di k.bu [email protected]
Nagengas : Senio Economis , DG Economics, Deu sche
Bundesbank, 60431, F ank u am Main, Ge many;
Phone +49 69 9566 8605, Fax +49 69 9566 6734, E-mail
[email p o ec ed]
sha e o o al g oss- ixed capi al o ma ion.1
While he ac ion o non-ICT capi al showed a
dec ease by almos 10 pe cen age poin s be ween
1997 and 2014, he co esponding igu es o
ICT and R&D capi al inc eased by a ound
6 pe cen age poin s and 5 pe cen age poin s,
espec i ely, o e he same ime pe iod. O e all,
he impo ance o ICT and R&D capi al has hus
g adually inc eased o e ime a he expense o
mo e adi ional (non-ICT) capi al goods such as
machine y and equipmen o buildings (see also,
e.g., Colecchia and Sch eye 2002; Co ado,
Hul en, and Sichel 2009).
Rega ding he unde lying economic o ces, i
is well documen ed ha echnological change
has con ibu ed o his de elopmen (e.g., Bas-
sanini and Sca pe a 2002). In his pape , we
o e an addi ional explana ion by linking he
inc ease in he eloca ion o p oduc ion ab oad
(i.e., o sho ing) obse ed in he pas decades o
he s uc u al change in he composi ion o he
demand o capi al.
1. Fo de ails on he classi ica ion o ixed capi al and a
desc ip ion o he unde lying da a including he coun ies and
sec o s co e ed, see Sec ion III.A. While he igu e shows
he simple a i hme ic mean ac oss sec o s and coun ies, he
esul s o indi idual coun ies a e b oadly simila .
ABBREVIATIONS
CES: Cons an Elas ici y o Subs i u ion
ICT: In o ma ion and Communica ion Technologies
OLS: O dina y Leas Squa es
R&D: Resea ch and De elopmen
2SLS: Two-S age Leas Squa es
SUR: Seemingly Un ela ed Reg ession
WIOD: Wo ld Inpu -Ou pu Da abase
260
Economic Inqui y
(ISSN 0095-2583)
Vol. 58, No. 1, Janua y 2020, 260–282
doi:10.1111/ecin.12828
Online Ea ly publica ion Augus 13, 2019
© 2019 The Au ho s. Economic Inqui y published by Wiley Pe iodicals, Inc. on behal o Wes e n Economic Associa ion In e na ional.
This is an open access a icle unde he e ms o he C ea i e Commons A ibu ion-NonComme cial-NoDe i s License, which pe mi s use and
dis ibu ion in any medium, p o ided he o iginal wo k is p ope ly ci ed, he use is non-comme cial and no modi ica ions o adap a ions a e made.
BURSIAN & NAGENGAST: OFFSHORING AND CAPITAL 261
FIGURE 1
G oss Fixed Capi al Fo ma ion
64 66 6870 72 74
[%]
12 14 16 1820
[%]
1995 2000 2005 2010 2015
ICT (le axis)
R&D (le axis)
non−ICT ( igh axis)
No es: Sha e o g oss- ixed capi al o ma ion by asse
class in o al g oss- ixed capi al o ma ion. The igu e shows
he simple a i hme ic mean o he sha es ac oss 32 sec o s in
11 coun ies (Sec ion III.A).
The in e na ional agmen a ion o p oduc ion
and i s o ganiza ion along global alue chains
has been a de ining ea u e o he wo ld econ-
omy in he ecen pas .2Fi ms ypically o sho e
p oduc ion i he sa ings acc uing om ac o
p ice di e ences ac oss coun ies ou weigh he
coo dina ion and ade cos s associa ed wi h he
addi ional agmen a ion o p oduc ion (Feen-
s a and Hanson 1997; G ossman and Rossi-
Hansbe g 2008; Kohle 2004). In his ega d, he
li e a u e has so a mainly ocused on he e ec s
o o sho ing on domes ic labo ma ke s. O e all,
a consensus has eme ged in he empi ical li e a-
u e ha o sho ing con ibu es o he decline in
he demand o low- and medium-skilled wo ke s
wi h a concomi an all in hei wages ela i e o
hose o high-skilled wo ke s (Feens a and Han-
son 1997, 1999; Hijzen, Gö g, and Hine 2005;
Hummels e al. 2014; Mo ison Paul and Siegel
2001; S auss-Kahn 2004). The implica ions o
o sho ing o he demand o capi al a e less
clea , howe e , wi h ambiguous esul s o R&D
capi al (Beladi, Ma ji , and Yang 2012; Glass
and Saggi 2001; Ma ji and Mukhe jee 2008)
and li le e idence on he ela ionship be ween
o sho ing and ICT capi al (Ab amo sky and
G i i h 2006; Rasel 2017).3
2. Acco ding o da a om he Wo ld Inpu –Ou pu
Da abase (WIOD), he sha e o impo ed in e media es in
global p oduc ion inc eased om 6.2% in 1995 o 8.3% in
2014. As a consequence, almos wo- hi ds o wo ld ade in
2014 was in in e media e goods and se ices.
3. See Sec ion IV.C o a discussion. Ano he s and o
he li e a u e examines he ela ionship be ween o eign and
In his pape , we p o ide a comp ehensi e
analysis o he o sho ing-induced e ec s on
he domes ic demand o capi al by asse class.
We apply and ex end he app oach o es ima ing
ela i e ac o demand equa ions s emming om
a anslog cos unc ion using a ich panel o
32 sec o s in 11 ad anced economies be ween
1995 and 2014 including a de ailed b eakdown
o capi al in o en di e en asse classes. Ou
empi ical esul s indica e ha o sho ing has
a nega i e impac on non-ICT capi al, he eby
pola izing he demand o capi al. Hence, o -
sho ing is one ac o behind he s uc u al change
in he composi ion o he demand o capi al
obse ed in ad anced economies. In a numbe o
sensi i i y es s, we show ha ou main esul is
obus agains a ange o di e en speci ica ions
and me hodological choices, including an ins u-
men al a iable app oach in o de o add ess
endogenei y conce ns using an ins umen based
on Hummels e al. (2014).
Se e al explana ions may a ionalize he
pola izing e ec o o sho ing on he demand
o capi al. Fi s , he o sho ing-induced educ-
ion in he ela i e demand o non-ICT capi al
may, in p inciple, e lec he di ec eloca ion
o capi al-in ensi e s ages o p oduc ion ab oad
due o c oss-coun y di e ences in he cos o
non-ICT capi al. Second, capi al-labo com-
plemen a ies (G iliches 1969) could explain
he nega i e e ec o o sho ing on non-ICT
capi al e en i he ma ginal p oduc o capi al
was equalized ac oss coun ies (i.e., when he e
a e no immedia e incen i es o i ms o o sho e
capi al-in ensi e s ages o p oduc ion). In his
case, o sho ing o labo -in ensi e s ages may
b ing abou adjus men s on he capi al side due
o inpu ac o complemen a ies.
The emainde o he pape is s uc u ed as ol-
lows: Sec ion II desc ibes he me hodology and
Sec ion III p esen s in o ma ion on he da ase
and desc ip i e s a is ics. The main esul s om
ou empi ical analysis a e discussed in Sec ion IV
and a comp ehensi e assessmen o hei obus -
ness is p o ided in Sec ion V. Sec ion VI o e s
some concluding ema ks.
II. METHODOLOGY
A. De i a ion o Fac o Sha e Equa ions
We analyze he ela ionship be ween o -
sho ing and he demand o capi al by es ima ing
domes ic in es men ac i i y o mul ina ional en e p ises ( o
an o e iew, see Goldbach e al. 2019).
262 ECONOMIC INQUIRY
a sys em o ela i e ac o demand equa ions
de i ed om a anslog cos unc ion (Ch is-
ensen, Jo genson, and Lau 1971, 1973).4
Conside a p oduc ion unc ion a he sec o le el
ha combines labo , capi al, and in e media e
inpu s in o de o p oduce ou pu :
Yi,j, = (Li,j, ,Ki,j, ,Mi,j, ,Zi,j, ),
whe e Yi,j, deno es g oss ou pu o sec o jin
coun y ia ime ,Li,j, ≡L1,i,j, ,…,Ll,i,j, a e
di e en ypes o labo inpu s, Ki,j, ≡K1,i,j, ,
…,Kk,i,j, a e capi al inpu s by asse class,
and Mi,j, ≡M1,i,j, ,…,Mm,i,j, a e di e en
ypes o in e media e inpu s. Zi,j, ≡Z1,i,j, ,…,
Zz,i,j, deno e le els o echnology which e lec
how e icien ly he inpu s a e combined in he
p oduc ion p ocess.
Unde s anda d assump ions, he duali y o he
i m’s op imiza ion p oblem implies ha he cos
unc ion con ains all economically ele an in o -
ma ion on he p oduc ion echnology. Assuming
ha inpu p ices a e gi en and ha he i m aims
a p oducing a ce ain ixed le el o g oss ou pu ,
Y, he cos unc ion is gi en by
C(pL,pK,pM,Y,Z)≡min
{Ln}l
n=1{Kn}k
n=1{Mn}m
n=1
l
∑
n=1
pn,LLn+
k
∑
n=1
pn,KKn+
m
∑
n=1
pn,MMn
≡min
{Qn}N
n=1
N
∑
n=1
pn,QQn,
whe e pL≡p1,L,…,pl,L,pK≡p1,K,…,pk,K,
and pM≡p1,M, .., pm,Mdeno e inpu p ices o he
labo , capi al, and in e media e inpu s, espec-
i ely, and Qis he se o inpu ac o s wi h
N=l+k+m.5Sec o , coun y, and ime sub-
sc ip s a e omi ed o no a ional simplici y. As
4. The anslog cos unc ion can be iewed as a
second-o de Taylo app oxima ion o an a bi a y wice-
di e en iable cos unc ion. I places no a p io i es ic-
ions on he subs i u abili y be ween inpu ac o s and nes s,
o ins ance, Cobb–Douglas o CES p oduc ion echnolo-
gies. Fo mo e ecen wo k using anslog unc ions see
C inò (2010), Senses (2010), Hakkala, Heyman, and Sjöholm
(2014), and Kumbhaka and Tsionas (2016), among o he s.
5. l,k,andmdepend on he deg ee o disagg ega ion
o he labo , capi al, and in e media e inpu s, espec i ely.
In he empi ical analyses below, an agg ega e measu e o
in e media e inpu s and labo will always be used (i.e., m=1
and l=1). Fo capi al inpu s, howe e , di e en deg ees o
disagg ega ion a e conside ed. In gene al, he capi al inpu is
spli in o h ee asse classes (ICT, non-ICT, and R&D capi al),
k=3, bu a highe le el o disagg ega ion in which k=7
is also conside ed as a obus ness es (Sec ion IV.A and
Table S1).
indica ed abo e, we assume ha he associa ed
cos unc ion a he sec o le el can be app ox-
ima ed by a anslog unc ional o m6which is
gi en by
ln(C)=α
0+
N
∑
n=1
αnln(pn,Q)+βyln(Y)+
z
∑
n=1
γnZn
(1)
+1
2
N
∑
n=1
N
∑
o=1
αno ln(pn,Q)ln(po,Q)+1
2βyy ln (Y)2
+1
2
z
∑
n=1
z
∑
o=1
γnoZnZo+
N
∑
n=1
δny ln(pn,Q)ln(Y)
+
N
∑
n=1
z
∑
o=1
δno ln(pn,Q)Zo+
z
∑
n=1
δyn ln(Y)Zn.
We assume ha inpu ac o s can adjus o
cos -minimizing le els in he sho un. In Sec ion
V.B, howe e , we show ha his assump ion is
no c ucial as allowing o a sluggish adjus men
o he inpu ac o s does no ha e a bea ing on
ou esul s. Linea homogenei y in inpu p ices
and symme y imply ha
N
∑
n=1
αn=1,
N
∑
n=1
αno =
N
∑
o=1
αno =
N
∑
n=1
δny =
N
∑
n=1
δno =0,
and
αno =α
on.
By Shepha d’s lemma, he demand o he
inpu ac o s condi ional on ou pu can be
6. No e ha he le el o echnology, Z, which is in gen-
e al p oxied by a measu e o o sho ing, does no en e he
anslog cos unc ion in logs as i is al eady measu ed in pe -
cen ages (Sec ion III.A). Changes in he ela i e demand o
he inpu ac o s may also be due o echnological change pe
se. The li e a u e on he ela ion be ween o sho ing and labo
demand he e o e ypically con ols o echnological change
by including some measu e o ICT o R&D in ensi y (e.g.,
Feens a and Hanson 1999; Hijzen, Gö g, and Hine 2005).
Gi en ha ICT and R&D ac o sha es a e among he indepen-
den a iables used in ou empi ical analysis, ollowing his
s a egy does no seem o be app op ia e. Ou baseline speci i-
ca ion con ols o yea ixed e ec s and, hence, accoun s o
echnological change o he han o sho ing ha is common
ac oss coun ies and sec o s. This speci ica ion yields unbi-
ased es ima es i he pa o echnological change con ained
in he e o e m (i.e., echnological change ha is no cap-
u ed by o sho ing o yea ixed e ec s) is unco ela ed wi h
he explana o y a iables. We show ha explici ly con olling
o echnological change in a numbe o di e en ways does
no ha e a bea ing on ou esul s (Sec ion V.C).
BURSIAN & NAGENGAST: OFFSHORING AND CAPITAL 263
ob ained by di e en ia ing he cos unc ion wi h
espec o inpu p ices, ha is, ∂C/∂pn,Q=Qn,
∀n=1, …,N. Hence, he pa ial de i a i e o
he anslog cos unc ion wi h espec o he n h
inpu p ice yields he cos sha e o inpu nin o al
cos :
Sn≡∂ln C
∂ln pn,Q
=pn,QQn
C=α
n+
N
∑
o=1
αno ln(po,Q)
(2)
+δ
ny ln(Y)+
z
∑
o=1
δnoZo,
whe e n=1, …,N.
B. Use Cos s o Capi al
While p ices o he labo inpu (i.e., wages) as
well as in e media es a e usually easy o ob ain,
ma ke in o ma ion on he p ice o he capi al
inpu (i.e., en al a es o use cos s) is ypi-
cally no a ailable. Hence, use cos s need o
be es ima ed o all asse classes. In p inciple,
he li e a u e dis inguishes be ween ex pos and
ex an e app oaches o calcula ing he use cos s
o capi al.
The ex pos me hod exclusi ely builds on
na ional accoun s da a and can be calcula ed in
a s aigh o wa d way wi hou he need o addi-
ional es ima ion s eps. The app oach elies only
on ealized da a and no assump ions on he na u e
o he expec a ion o ma ion p ocess a e equi ed.
Ou baseline esul s ely on an ex pos measu e
ha was calcula ed unde he s anda d assump-
ion ha he nominal a e o e u n is equalized
ac oss di e en asse s in a pa icula sec o (Jo -
genson, Gollop, and F aumeni 1987; Jo genson
and G iliches 1967). The esul ing use cos s o
asse ia ime ,uci, ,a egi enby
uci, =qi, −1i +δ
i, qi, −(qi, −qi, −1),
whe e i is he nominal a e o e u n on al e -
na i e capi al in es men s (i.e., he oppo uni y
cos ), 𝛿i, is he dep ecia ion a e, and qi, is he
in es men p ice o asse i. No e ha he compos-
i e e m qi, −qi, −1 e lec s asse -speci ic capi al
gains o in es ing in asse i. F om a heo e i-
cal poin o iew, howe e , in es men decisions
a e based on expec ed, a he han ealized ou -
comes leading o he so-called ex an e use cos
app oach o iginally p oposed by Diewe (1980).
In he absence o axa ion, he ex an e use cos s
o asse ia ime ,uci, , can be de ined ollowing
Aue bach (1983) as
uci, =[ e
+δ
i, −(π
e
i, −π
e
)] qi,
py,
,
whe e e
is he expec ed eal a e o e u n, πe
i,
is he expec ed asse -speci ic p ice in la ion, πe
is he expec ed economy-wide p ice in la ion,
and py, is he alue added p ice. No e ha he
composi e e m πe
i, −π
e
now e lec s he expec ed
ela i e capi al gains o in es ing in asse i.7
Dep ecia ion a es, 𝛿i, , in es men p ices, qi, ,
and alue added p ices, py, , a e di ec ly aken
om EU KLEMS. The nominal a e o e u n,
i , is gi en by he sec o -mean a e o e u n
ac oss all asse classes based on he EU KLEMS
me hodology. Asse p ice in la ion, 𝜋i, , is mea-
su ed as he pe cen age change in he in es men
p ice index, whe eas economy-wide in la ion, 𝜋 ,
is based on he alue-added de la o o he o al
economy. The ex an e app oach equi es es i-
ma es o he expec ed eal a e o e u n, e
,
and asse -speci ic expec ed p ice gains, πe
i, −π
e
.
Fo bo h, i s , we es ima e au o eg essi e models
using da a up un il and, second, p oduce ou -
o -sample o ecas s o + 1 using he es ima ed
p ocesses (e.g., Oul on 2007).
In bo h ex pos and ex an e app oaches, we
compu e use cos s o capi al a he mos disag-
g ega ed le el o all en asse classes a ailable in
EU KLEMS. Agg ega e measu es o use cos s
a e ob ained by agg ega ing o e use cos s o
indi idual asse s acco ding o hei a e age sha e
in he o al compensa ion o he espec i e capi al
agg ega e:
(3) pi,K, =
J
∑
j=1
(νi
j, +ν
i
j, −1)
2ucj, ,
whe e pi,K, deno es he use cos s o capi-
al agg ega e icomp ising Jsubcomponen s
and νi
j, deno es he j h asse ’s sha e in he
compensa ion o capi al agg ega e igi en by
ucj, Kj, ∕∑J
k=1uck, Kk, o he ex pos app oach.8
7. No e ha he ex an e use cos s o capi al a e exp essed
in eal e ms, as is ypically done in he li e a u e. In con as ,
we ollow he EU KLEMS me hodology and calcula e he
ex pos measu e in nominal e ms (O’Mahony and Timme
2009). We show in a obus ness exe cise ha using p ice-
adjus ed ex pos use cos s does no quali a i ely change he
esul s (Sec ion V.C).
8. No e ha in Equa ion (3) ucj, deno es use cos s o he
mos disagg ega ed asse classes; pi,K, e e s o he use cos s
o he capi al agg ega es ha en e he empi ical analyses
below.

264 ECONOMIC INQUIRY
Equi alen exp essions o he ex an e app oach
a e omi ed o b e i y.9
III. DATA AND DESCRIPTIVE STATISTICS
A. Da a Sou ces and Cons uc ion
The main da a sou ces a e he EU KLEMS
Sep embe 2017 elease (Jäge 2017) and he
WIOD elease 2013 and 2016 (Timme e al.
2015). EU KLEMS con ains da a on g oss ou pu ,
p ices o in e media es, labo compensa ion, o al
hou s wo ked by pe sons engaged, and a de ailed
b eakdown o in es men p ices and he capi al
s ock o he ime pe iod om 1995 o 201410 o
11 coun ies: Aus ia, Denma k, Finland, F ance,
Ge many, I aly, he Ne he lands, Spain, Sweden,
he Uni ed Kingdom, and he Uni ed S a es.11
We conside a sample including in o ma ion on
32 sec o s (Table A1).12 In p inciple, in o ma-
ion on en di e en asse classes is a ailable in
EU KLEMS (Figu e A1), which we agg ega e o
each coun y-sec o -yea cell in o he h ee b oad
asse classes: non-ICT (1: anspo equipmen ; 2:
o he machine y equipmen ; 3: cul i a ed asse s;
4: dwellings; 5: o he buildings and s uc u es;
6: esidual: mine al explo a ion and a is ic o igi-
nals), ICT (7: compu e ha dwa e; 8: elecommu-
nica ions equipmen ; 9: compu e so wa e and
da abases), and R&D capi al (10: esea ch and
de elopmen ).13 A e age wages a e compu ed as
he a io o labo compensa ion o o al hou s
wo ked. The dependen a iables in he empi ical
9. Fo all ex an e measu es o he use cos s o capi al, we
use p edic ed sha es based on ou -o -sample o ecas s om
au o eg essi e models.
10. This is ue o mos o he coun ies and indus ies.
In some cases, howe e , ce ain a iables a e only a ailable
o sho e ime pe iods.
11. Da a o o he EU coun ies is a ailable, bu lacks
he de ailed b eakdown equi ed o ou analysis, wi h he
excep ion o he Czech Republic and Slo akia, which we e
excluded gi en ha hey a e mo e commonly conside ed
o sho ing des ina ions.
12. We d op sec o s T (“Ac i i ies o households as
employe s; undi e en ia ed goods- and se ices-p oducing
ac i i ies o households o own use”) and U (“Ac i i ies o
ex a e i o ial o ganiza ions and bodies”).
13. We disagg ega e he capi al inpu in o i s ICT, non-
ICT, and R&D componen s in o de o ensu e compa abili y
o ou esul s wi h he p e ious li e a u e. No e ha ou pape
is based on he Sep embe 2017 elease o he EU KLEMS
G ow h and P oduc i i y Accoun s. While p e ious e sions
o EU KLEMS in e alia did no ecognize expendi u es
on R&D as in es men , he concep s, and me hodologies
in he 2017 elease a e in line wi h he cu en e sion o
he Eu opean Sys em o Na ional Accoun s in oduced in
Sep embe 2014. Expendi u es on R&D a e now, o ins ance,
coun ed as in es men and he e o e add o GDP.
analysis a e he compensa ion sha es o each p o-
duc ion ac o in o al cos s, which a e compu ed
as he labo compensa ion, capi al compensa ion,
o he in e media e inpu s a cu en pu chase
p ices ela i e o o al cos s.
The 2016 elease (2013 elease) o he WIOD
includes in o ma ion on he sou ce o impo ed
in e media es o 43 (40) coun ies and 56 (35)
sec o s o he pe iod 2000 o 2014 (1995 o
2011). We ollow Be man, Bound, and G iliches
(1994) and Campa and Goldbe g (1997), and
de ine o sho ing in sec o so coun y cas he
sha e o impo ed in e media es in g oss ou pu :
Ocs =
C
∑
i≠c
S
∑
j
Mcs,ij
ycs
,
whe e Mcs,ij deno es he in e media es used in
he p oduc ion o sec o so coun y csou ced
om sec o jo coun y i,ydeno es g oss ou -
pu , and ime subsc ip s a e omi ed o b e i y.14
The o sho ing measu e is based on he 2016
elease o WIOD o 2000 o 2014, and we
ex end he sample o 1995 by backcas ing he
ime se ies using g ow h a es o he o sho ing
measu e based on he 2013 elease o WIOD.
Co espondence ables be ween he sec o s o he
wo WIOD eleases and EU KLEMS a e de ailed
in he appendix (Tables A2 and A3).
B. Desc ip i e S a is ics
This sec ion p esen s summa y s a is ics on
he o sho ing measu e as well as he ac o sha es
and ac o p ices o e ime by coun y (Table A4)
and sec o (Table A5). The ables p esen he
o sho ing measu e and he le els o he inpu
ac o sha es in 2000 as well as changes o he
espec i e a iables o e ime be ween 2000 and
2014. Fo ac o p ices, annual p ice changes o
he inpu ac o s be ween 2000 and 2014 a e
shown. P ices o he capi al inpu s a e based on
es ima es o he use cos s o capi al om he ex
pos app oach de ailed in Sec ion II.B.
O e all, he e olu ion o he a iables shows a
subs an ial deg ee o he e ogenei y ac oss coun-
ies and, pa icula ly, ac oss sec o s, bu some
gene al pa e ns a e also disce nible. The deg ee
o o sho ing amoun ed o a ound 10% by 2000
ac oss he sample o coun ies and inc eased on
14. Al e na i e de ini ions o o sho ing such as di iding
impo ed in e media es by domes ic alue-added ins ead o
g oss ou pu exis in he li e a u e (Hijzen, Gö g, and Hine
2005), bu do no quali a i ely change ou esul s (Sec ion
V.C).
BURSIAN & NAGENGAST: OFFSHORING AND CAPITAL 265
FIGURE 2
Median Use Cos s o Capi al (in % o Replacemen Cos s in 2010)
0 20 40 60 80100 120
[%]
1995 2000 2005 2010 2015
ICT
non−ICT
R&D
Ex pos use cos s
0 20 40 60 80100 120
[%]
1995 2000 2005 2010 2015
ICT
non−ICT
R&D
Ex an e use cos s
AB
a e age by 2.6 pe cen age poin s un il 2014. Se -
ices sec o s had a lowe sha e o impo ed in e -
media es han manu ac u ing sec o s in 2000 and
also o sho ed less in absolu e e ms be ween
2000 and 2014. Fo he a e age coun y, he labo
sha e declined (−1.1 pe cen age poin s), while
wages inc eased no iceably (+2.9% pe yea ).
The sha e o in e media e inpu s in g oss ou pu ,
which includes bo h domes ic and impo ed in e -
media es, also inc eased on a e age (+1.9 pe -
cen age poin s) and became mo e expensi e o e -
all (+1.9% pe yea ).
On he capi al side, non-ICT capi al makes
up he la ges sha e in capi al compensa ion, ol-
lowed by ICT and R&D capi al. The sha e o
non-ICT capi al in o al cos s was 15.3% on a e -
age in 2000, while i s ood a 1.9% and 1.7%
o ICT and R&D capi al, espec i ely. O e all,
he e was a endency o educe non-ICT and o
inc ease R&D capi al ela i e o he emaining
inpu ac o s, wi h no clea endency obse able
o ICT capi al. Tu ning o p ice de elopmen s,
ICT capi al became, on a e age, less expensi e
o e ime (−4.1% pe yea ), while p ices o non-
ICT and R&D capi al inc eased sligh ly (+0.8%
and + 1.6% pe yea , espec i ely).
As indica ed abo e, es ima es o he use
cos s o capi al a e subjec o unce ain y.
Figu e 2 compa es he median p ice de elop-
men s o non-ICT, ICT, and R&D capi al om
he baseline (ex pos ) and an al e na i e (ex an e)
app oach.15 O e all, di e ences in es ima ed
15. These ex an e use cos s a e based on ime- a ying
sec o -speci ic a es o e u n and expec a ions we e ob ained
use cos s as a ac ion o eplacemen cos s
a e a he small, and, on a e age, es ima es a e
simila om a quali a i e poin o iew. The
use cos s o ICT capi al show a clea downwa d
end om abo e 120% (o eplacemen cos s in
2010) a he beginning o he sample o below
40% in 2014. While he use cos s o non-ICT
capi al emained b oadly unchanged o e ime
a a ound 20%, he use cos s o R&D capi al
showed a mode a e upwa d end in he baseline
e sion om 20% a he beginning o he sample
pe iod o a ound 30% in 2014. In he al e na i e
e sion, howe e , he use cos s o R&D capi al
changed only e y li le.
IV. BASELINE RESULTS
This sec ion p esen s he esul s om es i-
ma ing he ac o sha e equa ions gi en by
Equa ion (2). We es ima e he sys em o sha e
equa ions join ly using a seemingly un ela ed
eg ession (SUR) es ima o , which yields mo e
e icien esul s compa ed o equa ion-by-
equa ion es ima ions when he e o e ms a e
co ela ed ac oss equa ions (Zellne 1962).16 In
using ou -o -sample o ecas s om AR(1)-models (Sec ion
II.B).
16. As he cos sha es add up o uni y by cons uc ion,
ha is, ∑N
n=1Sn=1, one equa ion has o be d opped in o de
o a oid he singula i y o he dis u bance co a iance ma ix.
The sys em o sha e equa ions is es ima ed wi h an i e a i e
Zellne e icien p ocedu e such ha he choice o he equa ion
ha is d opped is a bi a y. In all ables, he coe icien s o he
co esponding sha e equa ion we e eco e ed by making use
o he c oss-equa ion adding-up cons ain s.
266 ECONOMIC INQUIRY
mos o he a ian s p esen ed below, yea and
coun y ×sec o ixed e ec s a e con olled o
and s anda d e o s a e clus e ed a he coun y-
sec o le el. The baseline esul s es upon a cos
unc ion wi h one labo and one in e media e
inpu along wi h capi al disagg ega ed in o ICT,
non-ICT, and R&D ca ego ies.
A. Ex Pos Use Cos s
The esul s based on ex pos use cos s o capi-
al a e p esen ed in Table 1.17 As we a e p ima ily
in e es ed in he ela ionship be ween o sho ing
and ac o demand, he sign and s a is ical signi -
icance o he es ima ed coe icien s on o sho ing
a e o main in e es .
In line wi h he p e ious li e a u e, we ind ha
o sho ing has a nega i e e ec on he demand
o labo and a posi i e e ec on he demand o
in e media e inpu s (Fos e -McG ego , S eh e ,
and de V ies 2013; Hijzen, Gö g, and Hine
2005).18 Simila o p e ious wo k, he sha e
o in e media es encompasses bo h domes ic
and impo ed in e media es. The e o e, he
coe icien on o sho ing in he equa ion o
in e media es cap u es he composi e e ec o
o sho ing on bo h domes ic and impo ed in e -
media es. A posi i e coe icien o o sho ing on
he demand o in e media e inpu s implies ha
o sho ing does no simply subs i u e domes ic
in e media es one- o-one. Howe e , he ac ha
he coe icien di e s om uni y sugges s ha he
o sho ing measu e cap u es bo h he educ ion
in sec o al alue added as well as changes om
domes ic o in e na ional supplie s.19
17. The es ima ed anslog cos unc ion (o equi alen ly,
he es ima ed sha e equa ions) should be consis en wi h
economic heo y. The esul s sugges ha ou es ima es a e
in line wi h economic heo y in he sense ha he own-p ice
elas ici ies a e nega i e and s a is ically signi ican o all
inpu ac o s (Allen 1938; Uzawa 1962). I should be no ed
ha nega i e own-p ice elas ici ies cons i u e a necessa y
condi ion o conca i y o a cos unc ion in inpu p ices.
18. Compa ing he coe icien es ima es o labo and
in e media e inpu s o hose in he li e a u e is only possible
o a limi ed ex en . Fi s , in his pape , we assume ha capi al
is a a iable inpu ac o ins ead o being quasi- ixed, as is
ypically assumed in mos o he exis ing body o he li e a u e
on he e ec s o o sho ing on labo demand. Second, mos
o he p e ious li e a u e disagg ega es he labo inpu by
skill ype, which is no he ocus o ou pape . Thi d, we
p oxy o sho ing as he sha e o impo ed in e media es in
g oss ou pu while al e na i e de ini ions exis in he li e a u e
(Sec ion V.C).
19. Unde he assump ion ha he p ices o domes-
ic and impo ed in e media es a e he same, he o -
sho ing coe icien in he in e media es equa ion in Table 1
implies ha a 1 pe cen age poin inc ease in o sho ing
educes domes ic in e media es by 0.686 pe cen age poin s
Tu ning o he demand o capi al by asse
class, we ind ha o sho ing signi ican ly
educes he demand o non-ICT capi al. An
inc ease in he sha e o impo ed in e medi-
a es by 1 pe cen age poin is associa ed wi h
a dec ease in he non-ICT capi al sha e by
0.145 pe cen age poin . Fu he mo e, he esul s
sugges ha o sho ing also has a s a is ically
signi ican nega i e impac on R&D capi al.
Howe e , he e ec is quan i a i ely small. The
o sho ing coe icien o non-ICT capi al is
oughly i e imes la ge in absolu e e ms han
he o sho ing coe icien on R&D capi al. In e -
es ingly, o sho ing does no seem o impac ICT
capi al in a s a is ically signi ican way.20
These esul s sugges ha o sho ing changes
he composi ion o he demand o capi al. While
non-ICT capi al has been squeezed by o sho ing
in he ecen pas , he ela i e demand o R&D
and ICT capi al has been a ec ed much less o no
a all by he es uc u ing o he domes ic p oduc-
ion p ocess.21 In line wi h he e minology used
o composi ional e ec s o o sho ing on labo
demand o di e en skill le els, we e e o his
phenomenon as he pola iza ion o he demand
o capi al.
B. Ex An e Use Cos s
The esul s abo e elied on ex pos use cos s
ha we e calcula ed in line wi h he EU KLEMS
me hodology. F om a p ac ical poin o iew, he
ex pos app oach has he ad an age ha i is com-
pa a i ely s aigh o wa d and anspa en , since
use cos s can be di ec ly ob ained om na ional
accoun s da a wi hou in ol ing addi ional es i-
ma ion s eps. Howe e , he ex pos measu e also
has some po en ial d awbacks. Fi s , in es men
decisions a e ypically based on expec ed a he
han ealized ou comes as implied in he ex pos
(0.314–1 =−0.686) since o sho ing inc eases impo ed
in e media es by de ini ion one- o-one. The e o e, o sho ing
appea s o ha e a subs an ially nega i e e ec on domes ic
in e media es.
20. The o sho ing elas ici ies (e.g., Fos e -McG ego ,
S eh e , and de V ies 2013) co esponding o he esul s in
Table 1 a e: non-ICT (−1.108***), ICT (0.105), and R&D
(−1.600***). *** indica es signi icance a he 1% le el.
No e ha he elas ici y o R&D capi al is compa a i ely
la ge gi en i s small a e age sha e in o al ac o compensa-
ion (Table A4). Howe e , he absolu e and no he ela i e
esponse o he demand o capi al by asse class o changes in
o sho ing is he ele an measu e o he pola iza ion esul .
21. Fu he disagg ega ing he capi al inpu co obo a es
his conclusion. The co esponding esul s om es ima ing
he ac o sha e equa ions o a cos unc ion including nine
inpu ac o s a e shown in Table S1.
BURSIAN & NAGENGAST: OFFSHORING AND CAPITAL 267
TABLE 1
Baseline Speci ica ion
Fac o Sha es
Labo Non-ICT Capi al ICT Capi al R&D Capi al In e media es
P ice labo 0.069*** −0.025*** −0.006*** −0.001 −0.036***
(0.009) (0.003) (0.002) (0.001) (0.009)
P ice non-ICT −0.025*** 0.040*** 0.004*** 0.003** −0.021***
(0.003) (0.004) (0.001) (0.001) (0.003)
P ice ICT −0.006*** 0.004*** 0.004*** 0.000 −0.002
(0.002) (0.001) (0.001) (0.000) (0.003)
P ice R&D −0.001 0.003** 0.000 0.001 −0.003**
(0.001) (0.001) (0.000) (0.001) (0.001)
P ice in e media es −0.036*** −0.021*** −0.002 −0.003** 0.062***
(0.009) (0.003) (0.003) (0.001) (0.010)
G oss ou pu −0.043*** −0.018** −0.010*** 0.001 0.069***
(0.007) (0.008) (0.004) (0.003) (0.012)
O sho ing −0.144*** −0.145*** 0.002 −0.028*** 0.314***
(0.029) (0.028) (0.009) (0.010) (0.048)
Obse a ions 5,634
No es: S anda d e o s in pa en heses a e clus e ed a he coun y-sec o le el. Yea and coun y ×sec o ixed e ec s a e
con olled o , bu a e no shown o b e i y.
***Signi ican a 1%; **signi ican a 5%.
app oach. Second, he calcula ion o ex pos use
cos s assumes ha he o al alue o capi al se -
ices equals g oss alue added ne o labo com-
pensa ion, ha is, he o al capi al compensa ion
in he ex pos app oach is a esidual. To he ex en
ha he e u n o capi al is con amina ed wi h
o he ac o s such as p o i s22 in he unde ly-
ing na ional accoun s da a, his may, in p inciple,
ha e an impac on he ex pos measu e o he use
cos s o capi al.
To add ess bo h conce ns, we compu e ex an e
measu es o he use cos s o capi al. Fi s , he
ex an e measu e akes unce ain y con on ing
in es o s when assessing he p o i abili y o
in es men p ojec s in o accoun . Second, he
ex an e app oach links a es o e u n di ec ly
o asse s and is he e o e less p one o pick-
ing up p o i s. Ou main speci ica ion is based
on ime- a ying sec o -speci ic a es o e u n
and expec a ion o ma ion using ou -o -sample
o ecas s om AR(1)-models (Table 2).23
O e all, he es ima ed coe icien s om he
speci ica ion using ex an e use cos s o cap-
i al con i m he inding on he pola iza ion o
he demand o capi al. Compa ed o he esul s
22. Fo example, a ecen li e a u e has ound e idence
o ising p o i ma gins and an inc ease in ma ke concen a-
ion (e.g., Au o e al. 2017a, 2017b; De Loecke and Eeck-
hou 2017, 2018).
23. The esul s a e quali a i ely simila i expec a ions
a e modeled using AR(2)-p ocesses (Table S2) o exponen ial
smoo hing, which mimics he concep o adap i e expec a-
ions (Table S3).
based on he ex pos measu e, i is wo h no ing
ha he o sho ing coe icien on non-ICT cap-
i al is somewha smalle (in absolu e e ms). In
p inciple, his may be due o he me hodological
di e ences ega ding he o wa d-looking na u e
o in es men and measu emen issues desc ibed
abo e. On one hand, an addi ional es ima ion
using asse -speci ic coun y ×sec o ime ends
sugges s ha measu emen issues in he ex pos
app oach do no play a conside able ole.24 On
he o he hand, using a hyb id e sion o he use
cos s o capi al, which includes o wa d-looking
elemen s, bu is s ill subjec o po en ial measu e-
men issues ega ding capi al se ices, yields an
e en la ge o sho ing coe icien on non-ICT (in
absolu e e ms) han in he baseline speci ica ion
(Table S5).25 O e all, his sugges s ha we a e
no able o ace he sou ce o he di e ences
be ween he coe icien es ima es in he ex pos
and he ex an e app oach. Mos impo an ly, how-
e e , ou main esul on he ela ionship be ween
24. Assume ha o some ypes o asse s (e.g., ICT o
R&D capi al), i is mo e likely ha measu ed e u ns o capi-
al a e con ounded wi h p o i s, and ha his mismeasu emen
s eadily inc eases o e ime. In such a scena io, he e ec s
s emming om mismeasu emen should be cap u ed in he
empi ical analyses by including asse -speci ic coun y-sec o
ime ends (Table S4). Howe e , he esul s emain quali a-
i ely unchanged, sugges ing ha po en ial mismeasu emen
issues ha e a negligible e ec on ou main esul .
25. In he hyb id me hod (Oul on 2007), he a es o
e u n a e de i ed a p io i and he p ices a e o ecas ed as in
he ex an e me hod, excep ha he e u ns o capi al sum o
he obse ed capi al compensa ion as in he ex pos me hod.
274 ECONOMIC INQUIRY
20 yea s. Ou pape di e s om he exis ing li -
e a u e by p o iding a comp ehensi e analysis o
he o sho ing-induced e ec s on he capi al side,
while p e ious wo k has ocused on he impac o
o sho ing on he skill s uc u e o labo demand.
Es ima ing a sys em o ac o demand equa ions,
we documen ha o sho ing has a pola izing
e ec on he demand o capi al. While non-ICT
capi al is squeezed by o sho ing, his is less o
no he case o R&D and ICT capi al. These
esul s a e obus agains a wide ange o di e -
en speci ica ions and me hodological choices
including an ins umen al a iable app oach o
add ess endogenei y conce ns. Hence, o sho ing
is—along wi h echnological change—one
ac o behind he s uc u al change in he com-
posi ion o he demand o capi al obse ed in
ad anced economies (Bassanini and Sca pe a
2002; Colecchia and Sch eye 2002; Co ado,
Hul en, and Sichel 2009). Po en ial explana ions
o he pola izing e ec o o sho ing on he
demand o capi al by asse class include (1)
he di ec o sho ing o capi al-in ensi e s ages
o p oduc ion and (2) capi al-labo complemen-
a ies. While we ske ch wo concei able channels
o he he e ogeneous e ec o o sho ing on he
demand o di e en asse classes, mo e wo k in
his a ea is a use ul di ec ion o u u e esea ch.
APPENDIX
TABLE A1
Sec o s in EU KLEMS
Code Sec o Type
A Ag icul u e, o es y, and ishing M
B Mining and qua ying M
10-12 Food p oduc s, be e ages, and obacco M
13-15 Tex iles, wea ing appa el, lea he , and ela ed p oduc s M
16-18 Wood and pape p oduc s; p in ing and ep oduc ion o eco ded media M
19 Coke and e ined pe oleum p oduc s M
20-21 Chemicals and chemical p oduc s M
22-23 Rubbe and plas ics p oduc s, and o he nonme allic mine al p oduc s M
24-25 Basic me als and ab ica ed me al p oduc s, excep machine y and equipmen M
26-27 Elec ical and op ical equipmen M
28 Machine y and equipmen n.e.c. M
29-30 T anspo equipmen M
31-33 O he manu ac u ing; epai and ins alla ion o machine y and equipmen M
D-E Elec ici y, gas, and wa e supply S
F Cons uc ion S
45 Wholesale and e ail ade and epai o mo o ehicles and mo o cycles S
46 Wholesale ade, excep mo o ehicles and mo o cycles S
47 Re ail ade, excep mo o ehicles and mo o cycles S
49-52 T anspo and s o age S
53 Pos al and cou ie ac i i ies S
I Accommoda ion and ood se ice ac i i ies S
58-60 Publishing, audio isual and b oadcas ing ac i i ies S
61 Telecommunica ions S
62-63 IT and o he in o ma ion se ices S
K Financial and insu ance ac i i ies S
L Real es a e ac i i ies S
M-N P o essional, scien i ic, echnical, adminis a i e, and suppo se ice ac i i ies S
O Public adminis a ion and de ense; compulso y social secu i y S
P Educa ion S
Q Heal h and social wo k S
R A s, en e ainmen and ec ea ion S
S O he se ice ac i i ies S
No es: Manu ac u ing (M) and se ices (S).

BURSIAN & NAGENGAST: OFFSHORING AND CAPITAL 275
TABLE A2
Co espondence be ween Sec o s in WIOD (Release 2016) and EU KLEMS
WIOD EUKLEMS
Code Sec o Code Sec o
A01 C op and animal p oduc ion, hun ing, and
ela ed se ice ac i i ies
A Ag icul u e, o es y, and ishing
A02 Fo es y and logging A Ag icul u e, o es y, and ishing
A03 Fishing and aquacul u e A Ag icul u e, o es y, and ishing
B Mining and qua ying B Mining and qua ying
C10-C12 Manu ac u e o ood p oduc s, be e ages, and
obacco p oduc s
10-12 Food p oduc s, be e ages, and obacco
C13-C15 Manu ac u e o ex iles, wea ing appa el, and
lea he p oduc s
13-15 Tex iles, wea ing appa el, lea he , and ela ed
p oduc s
C16 Manu ac u e o wood and o p oduc s o wood
and co k, excep u ni u e; manu ac u e o
a icles o s aw and plai ing ma e ials
16-18 Wood and pape p oduc s; p in ing and
ep oduc ion o eco ded media
C17 Manu ac u e o pape and pape p oduc s 16-18 Wood and pape p oduc s; p in ing and
ep oduc ion o eco ded media
C18 P in ing and ep oduc ion o eco ded media 16-18 Wood and pape p oduc s; p in ing and
ep oduc ion o eco ded media
C19 Manu ac u e o coke and e ined pe oleum
p oduc s
19 Coke and e ined pe oleum p oduc s
C20 Manu ac u e o chemicals and chemical
p oduc s
20-21 Chemicals and chemical p oduc s
C21 Manu ac u e o basic pha maceu ical p oduc s
and pha maceu ical p epa a ions
20-21 Chemicals and chemical p oduc s
C22 Manu ac u e o ubbe and plas ic p oduc s 22-23 Rubbe and plas ics p oduc s, and o he
nonme allic mine al p oduc s
C23 Manu ac u e o o he nonme allic mine al
p oduc s
22-23 Rubbe and plas ics p oduc s, and o he
nonme allic mine al p oduc s
C24 Manu ac u e o basic me als 24-25 Basic me als and ab ica ed me al p oduc s,
excep machine y and equipmen
C25 Manu ac u e o ab ica ed me al p oduc s,
excep machine y and equipmen
24-25 Basic me als and ab ica ed me al p oduc s,
excep machine y and equipmen
C26 Manu ac u e o compu e , elec onic and op ical
p oduc s
26-27 Elec ical and op ical equipmen
C27 Manu ac u e o elec ical equipmen 26-27 Elec ical and op ical equipmen
C28 Manu ac u e o machine y and equipmen n.e.c. 28 Machine y and equipmen n.e.c.
C29 Manu ac u e o mo o ehicles, aile s, and
semi aile s
29-30 T anspo equipmen
C30 Manu ac u e o o he anspo equipmen 29-30 T anspo equipmen
C31-C32 Manu ac u e o u ni u e; o he manu ac u ing 31-33 O he manu ac u ing; epai and ins alla ion o
machine y and equipmen
C33 Repai and ins alla ion o machine y and
equipmen
31-33 O he manu ac u ing; epai and ins alla ion o
machine y and equipmen
D35 Elec ici y, gas, s eam and ai condi ioning
supply
D-E Elec ici y, gas and wa e supply
E36 Wa e collec ion, ea men , and supply D-E Elec ici y, gas, and wa e supply
E37-E39 Sewage; was e collec ion, ea men , and
disposal ac i i ies; ma e ials eco e y;
emedia ion ac i i ies and o he was e
managemen se ices
D-E Elec ici y, gas, and wa e supply
F Cons uc ion F Cons uc ion
G45 Wholesale and e ail ade and epai o mo o
ehicles and mo o cycles
45 Wholesale and e ail ade and epai o mo o
ehicles and mo o cycles
G46 Wholesale ade, excep mo o ehicles and
mo o cycles
46 Wholesale ade, excep mo o ehicles and
mo o cycles
G47 Re ail ade, excep mo o ehicles and
mo o cycles
47 Re ail ade, excep mo o ehicles and
mo o cycles
H49 Land anspo and anspo ia pipelines 49-52 T anspo and s o age
H50 Wa e anspo 49-52 T anspo and s o age
H51 Ai anspo 49-52 T anspo and s o age
H52 Wa ehousing and suppo ac i i ies o
anspo a ion
49-52 T anspo and s o age
H53 Pos al and cou ie ac i i ies 53 Pos al and cou ie ac i i ies
I Accommoda ion and ood se ice ac i i ies I Accommoda ion and ood se ice ac i i ies
J58 Publishing ac i i ies 58-60 Publishing, audio isual, and b oadcas ing
ac i i ies
276 ECONOMIC INQUIRY
TABLE A2
Con inued
WIOD EUKLEMS
Code Sec o Code Sec o
J59-J60 Mo ion pic u e, ideo and ele ision p og am
p oduc ion, sound eco ding, and music
publishing ac i i ies; p og amming and
b oadcas ing ac i i ies
58-60 Publishing, audio isual, and b oadcas ing
ac i i ies
J61 Telecommunica ions 61 Telecommunica ions
J62-J63 Compu e p og amming, consul ancy and
ela ed ac i i ies; in o ma ion se ice
ac i i ies
62-63 IT and o he in o ma ion se ices
K64 Financial se ice ac i i ies, excep insu ance and
pension unding
K Financial and insu ance ac i i ies
K65 Insu ance, einsu ance, and pension unding,
excep compulso y social secu i y
K Financial and insu ance ac i i ies
K66 Ac i i ies auxilia y o inancial se ices and
insu ance ac i i ies
K Financial and insu ance ac i i ies
L68 Real es a e ac i i ies L Real es a e ac i i ies
M69-M70 Legal and accoun ing ac i i ies; ac i i ies o
head o ices; managemen consul ancy
ac i i ies
M-N P o essional, scien i ic, echnical,
adminis a i e, and suppo se ice ac i i ies
M71 A chi ec u al and enginee ing ac i i ies;
echnical es ing and analysis
M-N P o essional, scien i ic, echnical,
adminis a i e, and suppo se ice ac i i ies
M72 Scien i ic esea ch and de elopmen M-N P o essional, scien i ic, echnical,
adminis a i e, and suppo se ice ac i i ies
M73 Ad e ising and ma ke esea ch M-N P o essional, scien i ic, echnical,
adminis a i e, and suppo se ice ac i i ies
M74-M75 O he p o essional, scien i ic, and echnical
ac i i ies; e e ina y ac i i ies
M-N P o essional, scien i ic, echnical,
adminis a i e, and suppo se ice ac i i ies
N Adminis a i e and suppo se ice ac i i ies M-N P o essional, scien i ic, echnical,
adminis a i e, and suppo se ice ac i i ies
O64 Public adminis a ion and de ense; compulso y
social secu i y
O Public adminis a ion and de ense; compulso y
social secu i y
P85 Educa ion P Educa ion
Q Human heal h and social wo k ac i i ies Q Heal h and social wo k
R-S O he se ice ac i i ies R A s, en e ainmen and ec ea ion
R-S O he se ice ac i i ies S O he se ice ac i i ies
No es: In case o mul iple co espondences, he da a was ei he (a) agg ega ed ac oss WIOD subsec o s o ma ch hose o EU
KLEMS o (b) he same alues o WIOD a iables we e impu ed in EU KLEMS subsec o s.
BURSIAN & NAGENGAST: OFFSHORING AND CAPITAL 277
TABLE A3
Co espondence be ween Sec o s in WIOD (Release 2013) and EU KLEMS
WIOD EUKLEMS
Code Sec o Code Sec o
A B Ag icul u e, hun ing, o es y, and ishing A Ag icul u e, o es y, and ishing
C Mining and qua ying B Mining and qua ying
15 16 Food, be e ages, and obacco 10-12 Food p oduc s, be e ages, and obacco
17 18 Tex iles and ex ile p oduc s 13-15 Tex iles, wea ing appa el, lea he , and ela ed
p oduc s
19 Lea he , lea he , and oo wea 13-15 Tex iles, wea ing appa el, lea he , and ela ed
p oduc s
20 Wood and p oduc s o wood and co k 16-18 Wood and pape p oduc s; p in ing and
ep oduc ion o eco ded media
21 22 Pulp, pape , pape , p in ing, and publishing 16-18 Wood and pape p oduc s; p in ing and
ep oduc ion o eco ded media
23 Coke, e ined pe oleum, and nuclea uel 19 Coke and e ined pe oleum p oduc s
24 Chemicals and chemical p oduc s 20-21 Chemicals and chemical p oduc s
25 Rubbe and plas ics 22-23 Rubbe and plas ics p oduc s, and o he
nonme allic mine al p oduc s
26 O he nonme allic mine al 22-23 Rubbe and plas ics p oduc s, and o he
nonme allic mine al p oduc s
27 28 Basic me als and ab ica ed me al 24-25 Basic me als and ab ica ed me al p oduc s,
excep machine y and equipmen
30 33 Elec ical and op ical equipmen 26-27 Elec ical and op ical equipmen
29 Machine y, n.e.c. 28 Machine y and equipmen n.e.c.
34 35 T anspo equipmen 29-30 T anspo equipmen
36 37 Manu ac u ing, n.e.c.; ecycling 31-33 O he manu ac u ing; epai and ins alla ion o
machine y and equipmen
E Elec ici y, gas, and wa e supply D-E Elec ici y, gas, and wa e supply
F Cons uc ion F Cons uc ion
50 Sale, main enance, and epai o mo o ehicles
and mo o cycles; e ail sale o uel
45 Wholesale and e ail ade and epai o mo o
ehicles and mo o cycles
51 Wholesale ade and commission ade, excep
mo o ehicles and mo o cycles
46 Wholesale ade, excep mo o ehicles and
mo o cycles
52 Re ail ade, excep mo o ehicles and
mo o cycles; epai o household goods
47 Re ail ade, excep mo o ehicles and
mo o cycles
60 Inland anspo 49-52 T anspo and s o age
61 Wa e anspo 49-52 T anspo and s o age
62 Ai anspo 49-52 T anspo and s o age
63 O he suppo ing and auxilia y anspo
ac i i ies; ac i i ies o a el agencies
49-52 T anspo and s o age
64 Pos and elecommunica ions 53 Pos al and cou ie ac i i ies
H Ho els and es au an s I Accommoda ion and ood se ice ac i i ies
64 Pos and elecommunica ions 58-60 Publishing, audio isual and b oadcas ing
ac i i ies
64 Pos and elecommunica ions 61 Telecommunica ions
64 Pos and elecommunica ions 62-63 IT and o he in o ma ion se ices
J Financial in e media ion K Financial and insu ance ac i i ies
70 Real es a e ac i i ies L Real es a e ac i i ies
71 74 Ren ing o M&Eq and o he business ac i i ies L Real es a e ac i i ies
O O he communi y, social, and pe sonal se ices M-N P o essional, scien i ic, echnical,
adminis a i e, and suppo se ice ac i i ies
L Public admin and de ense; compulso y social
secu i y
O Public adminis a ion and de ense; compulso y
social secu i y
M Educa ion P Educa ion
N Heal h and social wo k Q Heal h and social wo k
O O he communi y, social, and pe sonal se ices R A s, en e ainmen , and ec ea ion
O O he communi y, social, and pe sonal se ices S O he se ice ac i i ies
No es: In case o mul iple co espondences, he da a was ei he (a) agg ega ed ac oss WIOD subsec o s o ma ch hose o EU
KLEMS o (b) he same alues o WIOD a iables we e impu ed in EU KLEMS subsec o s.
278 ECONOMIC INQUIRY
TABLE A4
Summa y S a is ics by Coun y
Fac o Sha es/O sho ing in 2000 (in %)
Labo Non-ICT Capi al ICT Capi al R&D Capi al In e media es O sho ing
Aus ia 33.4 16.2 1.7 1.5 47.2 12.1
Denma k 32.5 15.4 1.9 1.6 48.3 13.4
Finland 28.8 13.9 1.1 2.6 53.4 10.2
F ance 31.6 14.6 2.2 2.3 49.3 9.1
Ge many 33.1 13.2 2.2 1.9 49.4 9.1
I aly 25.8 16.7 1.8 0.9 54.7 7.7
Ne he lands 31.6 12.4 1.4 1.5 52.9 13.2
Spain 27.9 15.9 2.0 0.9 53.2 10.8
Sweden 27.3 15.9 2.9 3.3 50.6 11.8
Uni ed Kingdom 32.9 17.0 1.6 0.5 47.6 7.3
Uni ed S a es 33.9 17.2 2.3 1.6 44.6 3.5
Mean 30.8 15.3 1.9 1.7 50.1 9.9
Changes in Fac o Sha es/O sho ing 2000–2014 (in PP)
Labo Non-ICT Capi al ICT Capi al R&D Capi al In e media es O sho ing
Aus ia −3.0 −2.3 0.2 0.4 4.7 3.6
Denma k −1.7 −2.5 0.1 0.9 3.2 4.1
Finland −1.7 −2.3 0.1 0.5 3.4 4.0
F ance 0.4 −1.4 −0.2 −0.6 1.8 2.4
Ge many −2.6 1.0 −0.8 0.7 1.7 3.4
I aly 1.4 −1.8 −0.4 0.1 0.8 1.6
Ne he lands −0.7 −1.3 0.3 −0.2 1.9 6.6
Spain −2.0 −0.2 −0.2 0.5 1.8 0.5
Sweden 0.5 −0.6 −0.4 0.5 −0.1 0.5
Uni ed Kingdom −0.6 −1.1 −0.0 0.1 1.7 1.4
Uni ed S a es −2.2 1.9 −0.1 0.4 −0.1 0.9
Mean −1.1 −1.0 −0.1 0.3 1.9 2.6
Annual P ice Changes 2000–2014 (in %)
Labo Non-ICT Capi al ICT Capi al R&D Capi al In e media es
Aus ia 2.9 1.2 −0.0 0.9 1.9
Denma k 3.2 0.6 −2.7 3.1 1.7
Finland 3.0 −0.3 −6.2 3.2 1.8
F ance 2.8 −1.8 −1.7 −0.2 1.7
Ge many 1.9 3.6 −9.0 2.9 1.1
I aly 2.5 −0.5 −0.6 −0.8 2.3
Ne he lands 2.7 0.5 −6.3 1.8 1.8
Spain 2.6 0.9 −5.9 0.5 2.1
Sweden 3.5 0.7 −4.1 1.7 2.1
Uni ed Kingdom 3.2 2.0 −2.6 2.4 1.9
Uni ed S a es 3.1 2.0 −5.7 2.2 2.5
Mean 2.9 0.8 −4.1 1.6 1.9
No es: Coun y alues a e weigh ed a e ages by each sec o ’s sha e in g oss ou pu . “Mean” e e s o he unweigh ed a e age
ac oss coun ies. “PP” e e s o pe cen age poin s.
BURSIAN & NAGENGAST: OFFSHORING AND CAPITAL 279
TABLE A5
Summa y S a is ics by Sec o
Fac o Sha es/
O sho ing in 2000 (in %)
Changes in Fac o Sha es/
O sho ing 2000–2014 (in PP)
Annual P ice Changes
2000–2014 (in %)
Labo
Non-
ICT ICT R&D In .
O -
sho ing Labo
Non-
ICT ICT R&D In .
O -
sho ing Labo
Non-
ICT ICT R&D In .
Ag icul u e, o es y, and ishing 38.2 12.7 0.3 0.1 48.6 7.9 −5.5 −1.3 −0.0 −0.0 6.9 4.0 2.7 2.2 −5.4 2.1 3.0
Mining and qua ying 18.0 32.7 1.0 0.7 44.0 9.3 −2.4 1.2 −0.1 0.2 1.0 2.5 3.6 0.3 −4.2 2.3 2.5
Food p oduc s, be e ages, and obacco 16.3 9.5 0.8 0.5 72.8 9.8 −2.0 −1.4 −0.2 0.2 3.4 4.5 2.7 0.9 −4.5 1.7 2.1
Tex iles, wea ing appa el, lea he , and ela ed p oduc s 25.7 7.0 0.7 0.5 66.1 20.6 −0.3 −0.8 0.0 0.4 0.6 8.9 3.4 0.4 −4.2 1.9 1.5
Wood and pape p oduc s; p in ing and ep oduc ion o
eco ded media
22.9 10.9 1.5 0.5 64.3 14.6 −1.4 −3.6 −0.5 0.3 5.2 3.4 2.6 −1.4 −4.9 0.6 1.5
Coke and e ined pe oleum p oduc s 3.8 7.2 0.6 0.8 87.6 41.5 −1.4 −4.3 −0.4 −0.6 6.6 13.0 3.5 −3.5 −8.0 −3.1 6.2
Chemicals and chemical p oduc s 16.1 11.8 1.1 7.0 64.0 19.3 −2.6 −2.7 −0.1 2.8 2.7 8.6 3.4 0.8 −3.5 2.2 2.4
Rubbe and plas ics p oduc s, and o he nonme allic mine al
p oduc s
25.6 11.5 1.0 1.3 60.6 16.4 −2.7 −2.9 −0.1 0.5 5.2 5.9 2.8 −0.5 −4.4 1.0 2.2
Basic me als and ab ica ed me al p oduc s, excep machine y
and equipmen
25.2 9.1 1.0 0.9 63.8 18.9 −3.5 −1.6 −0.2 0.1 5.2 5.5 2.8 0.4 −4.3 1.5 2.6
Elec ical and op ical equipmen 19.9 6.4 2.2 7.9 63.6 21.7 3.2 −1.4 −0.2 2.8 −4.3 5.4 3.2 −2.2 −4.9 −0.3 −0.0
Machine y and equipmen n.e.c. 24.6 7.2 1.4 3.0 63.8 18.2 −2.3 −0.5 −0.1 2.0 0.8 6.1 3.2 1.5 −3.2 2.4 1.4
T anspo equipmen 18.1 5.3 1.0 3.6 72.0 24.8 −1.8 −0.1 −0.1 0.9 1.0 6.0 3.4 0.3 −2.4 2.1 1.2
O he manu ac u ing; epai and ins alla ion o machine y and
equipmen
32.3 7.1 1.1 2.0 57.4 14.6 −1.0 0.6 0.2 0.7 −0.4 3.1 3.1 2.2 −3.0 2.8 1.5
Elec ici y, gas, and wa e supply 15.4 27.4 1.6 0.9 54.7 11.5 −2.4 −2.8 −0.0 −0.5 5.8 2.2 2.8 1.3 −3.8 1.5 3.0
Cons uc ion 32.9 7.7 0.4 0.1 58.9 9.9 0.5 −0.7 0.0 −0.0 0.2 2.0 2.9 0.8 −3.6 2.1 2.2
Wholesale and e ail ade and epai o mo o ehicles and
mo o cycles
40.2 12.1 1.1 0.1 46.5 10.9 1.2 0.2 −0.1 0.0 −1.3 2.0 3.7 1.3 −2.5 4.2 1.7
Wholesale ade, excep mo o ehicles and mo o cycles 36.0 16.3 3.3 1.0 43.4 6.3 −2.1 1.7 0.2 0.3 −0.1 1.7 3.0 3.6 −2.0 4.3 1.8
Re ail ade, excep mo o ehicles and mo o cycles 48.1 14.3 2.5 0.1 35.1 3.9 −4.3 −0.3 −0.4 0.0 5.0 1.3 3.1 2.1 −3.4 3.4 1.8
T anspo and s o age 30.8 14.3 1.6 0.1 53.2 12.3 −3.7 −1.4 −0.7 −0.0 5.7 3.8 3.0 1.0 −3.8 1.6 2.2
Pos al and cou ie ac i i ies 53.3 5.5 2.0 0.3 38.9 4.7 −10.4 −0.9 −0.6 0.1 11.8 3.4 3.5 2.1 −0.9 1.9 0.8
Accommoda ion and ood se ice ac i i ies 37.3 12.4 0.8 0.0 49.4 4.6 1.6 −1.6 −0.2 −0.0 0.2 1.7 2.5 0.8 −4.7 0.3 2.0
Publishing, audio isual and b oadcas ing ac i i ies 26.6 10.1 4.9 0.8 53.4 6.4 1.4 −1.2 0.7 0.6 −1.2 0.9 2.5 −0.4 −3.5 0.9 1.2
Telecommunica ions 18.6 18.5 10.2 1.2 51.4 7.7 −2.5 −0.2 −0.5 0.6 2.6 2.7 3.0 0.1 −3.2 1.6 −0.6
IT and o he in o ma ion se ices 45.0 3.1 6.8 1.4 43.6 5.9 −2.5 0.9 0.8 0.8 −0.0 1.7 2.9 2.5 −2.0 4.2 1.0
Financial and insu ance ac i i ies 32.2 15.5 5.8 0.4 46.0 3.5 −2.8 1.4 0.6 0.7 0.0 0.4 3.0 4.1 −2.1 3.8 1.1
Real es a e ac i i ies 5.1 67.9 0.2 0.0 26.8 1.8 −0.2 −1.7 0.1 −0.0 1.8 0.1 2.3 1.8 −4.3 0.9 2.6
P o essional, scien i ic, echnical, adminis a i e, and suppo
se ice ac i i ies
40.3 9.4 3.3 2.8 44.2 5.8 3.0 −2.0 −0.9 −0.1 0.1 1.3 2.6 −1.4 −5.4 0.2 1.5
Public adminis a ion and de ense; compulso y social secu i y 50.3 13.2 2.0 1.4 33.0 4.8 −2.4 0.7 −0.3 0.0 2.0 −0.2 3.2 0.4 −4.1 1.9 1.9
Educa ion 68.3 4.2 1.2 4.6 21.7 1.8 −1.5 −0.3 −0.1 0.2 1.6 0.5 2.7 0.9 −4.5 1.5 2.0
Heal h and social wo k 59.5 8.2 0.9 0.7 30.8 4.4 −2.4 −0.5 −0.0 −0.1 3.0 1.9 2.7 1.1 −4.3 2.2 1.6
A s, en e ainmen , and ec ea ion 40.0 12.0 1.9 1.0 43.8 4.6 −0.7 −0.5 −0.5 −0.1 1.9 0.9 2.4 0.7 −4.8 1.8 1.9
O he se ice ac i i ies 49.1 10.8 1.6 0.5 38.0 4.5 4.5 −3.2 −0.6 −0.1 −0.6 0.8 3.2 −1.4 −5.0 −0.6 1.6
No es: Sec o alues a e unweigh ed a e ages ac oss coun ies. “PP” e e s o pe cen age poin s and “In .” o in e media es.

280 ECONOMIC INQUIRY
TABLE A6
Fi s -S age Resul s o 2SLS Reg ession (Table 3)
O sho ing
P ice labo −0.002
(0.016)
P ice non-ICT −0.014***
(0.004)
P ice ICT −0.004
(0.004)
P ice R&D −0.000
(0.001)
P ice in e media es 0.075***
(0.023)
G oss ou pu 0.010
(0.010)
Wo ld expo supply 0.772***
(0.204)
Obse a ions 5,634
F-s a is ic 14.385
No es: S anda d e o s in pa en heses a e clus e ed a he coun y-sec o le el. Yea and coun y ×sec o ixed e ec s a e
con olled o , bu a e no shown o b e i y.
***Signi ican a 1%.
FIGURE A1
Classi ica ion o Fixed Capi al
BURSIAN & NAGENGAST: OFFSHORING AND CAPITAL 281
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SUPPORTING INFORMATION
Addi ional suppo ing in o ma ion may be ound online
in he Suppo ing In o ma ion sec ion a he end o he a icle.
Table S1: Speci ica ion wi h nine inpu ac o s
Table S2: Ex an e use cos s o capi al: AR(2)-models
Table S3: Ex an e use cos s o capi al: Adap-
i e expec a ions
Table S4: Asse -speci ic coun y ×sec o ime ends
Table S5: Hyb id use cos s o capi al
Table S6: Ex pos baseline (Table 1) wi h coun y ×yea
and sec o ×yea ixed e ec s
Table S7: Ex an e baseline (Table 2) wi h coun y ×yea
and sec o ×yea ixed e ec s
Table S8: Ex an e use cos s o capi al: Tax conside a ions
Table S9: Baseline es ima ed wi h OLS wi hou c oss-
equa ion cons ain s
Table S10: Ins umen al a iable app oach wi h es ic ed
ins umen g oup
Table S11: Fi s -s age esul s o 2SLS eg ession wi h
es ic ed ins umen g oup (Table S10)
Table S12: Con olling o echnological change:
R&D in ensi y
Table S13: Con olling o echnological change: ICT
capi al s ock
Table S14: Con olling o echnological change: Coun y
×sec o ime ends
Table S15: Con olling o echnological change:
Solow esidual
Table S16: Es ima ion o sub-samples
Table S17: Es ima ion in i s di e ences (Δ , −1)
Table S18: Es ima ion in long di e ences (Δ2014;2000)
Table S19: Al e na i e o sho ing measu es
Table S20: Baseline speci ica ion wi h dwellings and eal
es a e indus y excluded
Table S21: Baseline speci ica ion wi h p ice-adjus ed ex
pos use cos s o capi al