Analysis of the output and productivity

How does evolve the production of the branches that use offshoring? How do they contribute to the US GDP growth? Table 6 presents comparison of change in real value added in the relevant sectors.

Table 6: Percent Changes in Real Value Added by Industry Group

2002 2003 2004 2005

GDP 1,6 2,5 3,9 3,2

Private industries 1,4 2,7 4,2 3,3

Private goods-producing industries 1,3 0,6 4,8 2,1

Private services-producing industries 1,5 3,3 4,1 3,7

ICT-producing industries* 2,0 7,2 13,7 13,3

Information 2,1 3,0 11,4 9,0

Professional and business services (of which:) -0,2 4,4 5,2 5,6 Professional, scientific, and technical services -1,5 4,0 7,8 6,8 Administrative and waste management services 1,2 6,4 0,8 5,3

Source: Bureau of Economic Research.¹⁰

Note: *Consists of computer and electronic products within durable-goods manufacturing; publishing industries (includes software) and information and data processing services within information; and computer systems design and related services within professional, scientific, and technical services.

In table 6 we see that there is difference in real value added between private industries producing services and industries producing goods. The first grew faster.

ICT-producing industries are summary category for both ICT sectors of production of

10 http://www.bea.gov/newsreleases/industry/gdpindustry/2006/gdpind05_rev.htm

goods and services. In recent years it records the highest growth from all the sectors of American economy.¹¹ Value added of information services has grown faster since 2004, there is a steep increase between years 2003 (3% growth) and 2004 (11,4%

growth). Professional and business services recorded above-average growth as well.

We can conclude that value added in the industries that make use of production offshoring has grown faster than the rest of American economy in recent years. This conclusion may suggest that offshoring fosters further investments and stimulates economic growth.

Labour productivity is defined as value added per employee, it may be figured up as ratio of real output less material and service inputs and employment. (Amiti and Wei 2006: 14)

Mann (2003: 3) concludes that offshoring in the sector of information technologies contributed by 0,3 percentage points annually to the rise of labour productivity in this branch between 1995 and 2000. Amiti and Wei (2006: 22) found that offshoring raised the labour productivity annually on average by 1,4%. However, this was not the case in terms of offshoring of material inputs whose annual contribution was rather lower (0,6%) and not significant as econometric tests suggest.

Table 7 presents contributions of particular industries to growth of real domestic product.

11 For the complete statistics see:

http://www.bea.gov/newsreleases/industry/gdpindustry/2006/gdpind05_rev.htm

Table 7: Contributions to Annual Percent Changes in Real Gross Domestic Product by Industry Group

2002 2003 2004 2005

GDP 1,60 2,50 3,90 3,20

Private industries 1,25 2,31 3,69 2,91

ICT-producing industries* 0,08 0,28 0,50 0,49 ratio contribution/GDP growth 0,05 0,11 0,13 0,15 Professional and business services -0,02 0,50 0,59 0,64 Finance, insurance, real estate, rental, leasing 0,19 0,49 0,87 0,60

Source: Bureau of Economic Research¹²

Note: *Consists of computer and electronic products within durable-goods manufacturing; publishing industries (includes software) and information and data processing services within information; and computer systems design and related services within professional, scientific, and technical services.

Table 7 reveals that ICT-producing industries were the third largest contributor to real GDP growth in 2005 (after Professional and business services and Finance, insurance, real estate, rental, leasing). The comparison between tables 7 and 8 reveals that the sectors involved in offshore outsourcing are those sectors with the highest productivity growth.

We should also take into account the size of producing industries. ICT-producing industries involve 2 % of American labour force (see chapter on labour market analysis for details) and it creates 15% of real GDP growth. It signifies that there is very high growth of productivity.

The usage of computers consequently became more common and it resulted in increased productivity in the overall economy. Olsen counts (2006: ) that it resulted in 0,3% of productivity growth and $230 billion annually added to the GDP.

12 http://www.bea.gov/newsreleases/industry/gdpindustry/2006/gdpind05_rev.htm

Table 8: Productivity growth per person engaged

1999 2000 2001 2002 2003 ´98-´03

Private industry 2,6% 1,8% 0,9% 3,4% 3,3% 2,4% Rank

Computer nad electronic products 28,9% 37,7% 2,9% 22,5% 35,0% 25,4% 1 Information and data processing services 12,8% -2,2% 13,1% 16,1% 13,2% 10,6% 3 Publishing industries (includes software) 16,8% -5,7% 5,9% 4,0% 11,5% 6,5% 6 Electrical equipment, appliances, components 9,9% 2,4% 0,0% 7,5% 12,6% 6,5% 7 Comp. systems design and related services 5,8% 5,0% 4,3% 9,8% 6,8% 6,4% 8 Broadcasting and telecommunications 8,6% 2,2% -4,2% 6,0% 12,0% 4,9% 10

Source: Nordhaus (2005: 25)

Table 8 reveals productivity growth rates in computer-related sectors. The computer-related sectors held 6 out of 10 top positions in the productivity-growth rank.

The computer-related industries are those with the highest productivity growth and they also belong to the industries which are to increasing extent outsourced offshore.

The conclusion that can be made from this chapter strongly supports the theoretical assumptions of the comparative advantage theory. Thank to specialization on the core issues of the firms´ business or lower costs the branches that use offshoring recorded the highest productivity growthIf we think of the value added as a size of the branch we may claim that the size of the offshoring using branches steadily grew (since 2003 within the observation period). Offshoring in the sector of services did not result in decreasing of the production in high-income countries. Moreover the firms could make some investment thank to lower costs and free capacities in home countries. This resulted in the growth of GDP of the sector os services as well as in the substantial contribution to growth of the U.S. GDP. Offshoring using sectors of services probably paid higher taxes to the state budget and the state can spend these extra taxes on beneficial purposes. Thus there is no decrease of average living standard due to offshoring of services.