U.S. Outsourcing is GOOD for Domestic Activity

A popular notion is that when U.S. companies expand abroad, they reduce domestic activity. In other words, when U.S. companies outsource, the U.S. loses jobs. A study just published in the AEA: Economic Policy Journal by Desai, Foley, and Hines Jr. shows the opposite is true. This has significant policy and popular perception implications. From the abstract:

10 percent greater foreign investment is associated with 2.6 percent greater domestic investment, and 10 percent greater foreign employee compensation is associated with 3.7 percent greater domestic employee compensation. These results do not support the popular notion that expansions abroad reduce a firm’s domestic activity, instead suggesting the opposite.


17 Responses to “U.S. Outsourcing is GOOD for Domestic Activity”

  1. 1 lalves March 1, 2009 at 8:20 PM

    The reason I believe the facts are not looked at when jobs are outsourced is because such a negative connotation has been associated with it. Of course Americans are going to feel mad when there jobs are taken away and given to someon half way across the world for less money. But what this prooves is that trade and involvement with other countries is rarely a bad idea.

  2. 2 Edward Murray March 2, 2009 at 7:59 AM

    Just a question, but wouldn’t there be a 12.6% greater US investment if that 10% sent overseas was combined with the 2.6% spent in the US?

    And similarly, wouldn’t the 3.7% greater employee compensations when combined with the 10% sent to India or Peru mean 13.7% for the US if it were invested here?

  3. 3 Ricardo Olmos March 4, 2009 at 1:56 PM

    I dont think outsourcing is always good for domestic activity becasue it takes away the jobs we need in the U.S.In addition if we maintain jobs here we make keep money flowing in our economy.Outsourcing is a great thing for growth in Independant and Public companies yet it has the potential to devaluate our economy. It is better to keep jobs domestically becasue we get ” more bang for our bucks” meaning money will flow withing our borders.Im all about international trade and labor but right now we need more resources within the U.S

  4. 4 Houck24 March 15, 2009 at 3:47 PM

    Outsourcing is something that has always been frowned upon by Americans. Yet the reason why a lot of goods are so cheap for us is because the labor to make these good were outsourced. We are able to get cheap goods at Wal-Mart because the labor is outsourced to places like China to make these good far far less than the minimum wage of an American worker. I think that it has its positives and negatives for the economy as a whole.

  5. 5 Gilberto Vazquez March 18, 2009 at 11:18 PM

    Most of the time people hate when companies go overseas with their jobs and most would think that its bad for the people here in the states so this is very shocking to seee that it actually helps the US. even though there might be data that it does actually help us, people have it dug into their minds so much already that its a bad thing that i doubt it will change.

  6. 6 Keith C March 19, 2009 at 10:29 PM

    I believe that a large amount of the negative connotations that are associated with outsourcing are because of the stereotype of the hypothetical American computer company who outsources their entire customer service department to a middle eastern country with people who barely speak English. This of course, as the article infers, is not the only way in which companies can expand globally/internationally. There is though, a definite difference between those two types of expansion, with the former being detrimental to the US economy.

  7. 7 Leonardo Sanchez ECON 101 April 29, 2009 at 3:21 PM

    Yes when Social Security was established it was meant for that

    size in that years population but not for our population. Baby

    boomers and the elderly are living longer and longer with this

    tech era and medicines. Since now the government is borring from

    the Federal money where do we see our selves 25 years from now?

  8. 8 Matthew Dimech May 5, 2009 at 9:18 PM

    I agree with the first comment on this page. Many Americans who really don’t know about outsourcing at first jump to the conclusion that we are giving away jobs to foreigners in different countries. But in fact, as this article states, outsourcing is very good for our domestic activity. Americans just need to look into the issue more and realize it.

  9. 9 Andrew May 12, 2009 at 4:08 PM

    The free trade market is a good thing. While it does cause domestic jobs to be lost, other jobs will open up that will allow them to get back into the working field. There is a global economy and people often see it as one that is self-perpetuating because it does balance itself out. our current situation economic is a really good example of the system correcting itself.

  10. 10 Gabriel Mayora May 13, 2009 at 3:54 PM

    Even though these results do not support the popular notion that expansions abroad reduce a firm’s domestic activity I still believe that the U.S. economy will benefit even more if we concentrated on domestic investment. I am sure that the US does benefit somewhat from foreign investment on returns but we need to concentrate on our economic well being first. Not just corporations creating profit anywhere they find it.

  11. 11 Kevin Clark St marys May 16, 2009 at 12:07 AM

    what this really comes down to is corporate governance needing to be a little bit more strict with their monitoring of these huge corporate juggernaught companies. The board of directors needs to set a limit of how many jobs must stay within the US and only a certain percentage of the jobs may be outsourced. If all the companies were to have this implemented into their systems then everyones profit margins would stay the same as they are all outsourcing the same amount. For this to happen the government would have to make a law.

  12. 12 Craig K May 20, 2009 at 8:49 PM

    I would like to know where the author of this article got his numbers and facts. Outsourcing has never been popular with Americans, I feel mostl becuase we are selfish and want to keep our goods and wealth within the country. These numbers are proving that we can all benefit from trade, which is something we covered in class with comparative and absolute advantage. If done right, exporting good can benefit ourslves and the other countries involved.

  13. 13 T May 25, 2009 at 10:59 PM

    Outsourcing allows products to be sold and made cheaper at the cost of losing production jobs and also increasing seasonal service jobs.

  14. 14 Nick Rood August 4, 2009 at 11:09 PM

    Both of these statistics show that the more we put into foreign economies, the more we get back. However, we seem to be receiving about 30% of what we put in. Does that mean if we focus 100% of our efforts into foreign investment and employee compensation, we will receive 30% in return? What would happen if we turned some of that energy inwards? It would seem logical that we would reap more benefits. While I understand the need for outsourcing, I would like to see how insourcing would benefit out country when we need it the most.

  15. 15 Hailey Cook August 6, 2009 at 10:20 AM

    While this may be slightly significant for a company (2%) domestically, wouldn’t it be much more significant if all of that 2% that is earned here, AND the 10 % outsourced, all came from domestic activity, how does that not make sense, the keep labor domestic, especially in times of economic hardship.

  16. 16 Luke Napier December 7, 2009 at 10:31 AM

    This type of article just really pisses me off. It is nice that we are sending jobs off to less fortunate and marvelous countries unlike our own, but we are in quite a whole ourselves. Why aren’t we giving these jobs to citizens of our own country. These citizens may not have the proper skills or talents needed, but at the same token with people making a steady paycheck and having money to spend it can fix other problems we are facing in the US. Why should ten percent of our work be going off to foreign lands when we have our own citizens lining up for jobs left and right in this nation?

  17. 17 JoAnn Reynolds December 7, 2009 at 5:12 PM

    I think that outsourcing is a sore subject with most people because they see the state of our economy and assume that sending work overseas takes away from work here. However there is the fact that our corporations that send work overseas would still only be hiring the same amount, if not less, people here. Because of the cheaper labor market the corporations can make more money which allows them to spend more money here.

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