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Offshoring and Its Effects on the Labour Market and Productivity: A Survey of Recent Literature Calista Cheung and James Rossiter, International Department, Yi Zheng, Research Department • Firms relocate production processes internationally (offshore) primarily to achieve cost savings. As offshoring becomes an increasingly prominent aspect of the globalization process, understanding its effects on the economy is important for handling the policy challenges that arise from structural changes induced by globalization in general. • In advanced economies, offshoring of materials used in manufacturing has risen steadily over the past two decades. The scale of offshoring in services is much smaller, but has grown faster than that of materials since the mid1990s. The intensity of offshoring in Canada has been higher than in many other advanced economies, probably because of our close economic relationship with the United States. • Offshoring has not exerted a noticeable impact on overall employment and earnings growth in advanced economies, but it has likely contributed to shifting the demand for labour towards higher-skilled jobs. • There appear to be some positive effects of offshoring on productivity consistent with theoretical expectations, but such effects differ by country. ver the past couple of decades, the lowering of trade and investment barriers as well as technological progress in transportation and communications have facilitated the globalization of production processes. Firms increasingly take advantage of the cost savings and other benefits that result from making or buying inputs where they can be produced more efficiently. This phenomenon of production relocation across national boundaries is generally known as offshoring.1 Understanding the implications of offshoring in the current context is an important step towards handling the opportunities and

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