Offshoring, Sourcing Substitution Bias, and the Measurement of Growth in U.S. Gross Domestic Product and Productivity

20 Pages Posted: 20 Feb 2018

See all articles by Marshall Reinsdorf

Marshall Reinsdorf

International Monetary Fund (IMF)

Robert Yuskavage

U.S. Department of Commerce - Bureau of Economic Analysis (BEA)

Date Written: March 2018

Abstract

The decade before the financial crisis of 2008 was a time of large changes in sourcing patterns for manufactured goods, particularly after China's entry into the WTO in 2001. Sourcing substitution reduced the prices paid by wholesale level buyers of these goods, but these price reductions were mostly not captured in the U.S. import price indexes and the U.S. GDP deflator. To find plausible values for sourcing bias we first use data on changes in sourcing patterns over 1997–2007 to predict the effect of the reported price discount from the new emerging market suppliers. Next, we compare adjusted import price indexes for products used for household consumption with consumer price indexes. In the GDP deflator for apparel imports, sourcing bias is found to average 0.6 percent per year, and for durable goods it averages 1 percent per year. During the decade of rapidly changing sourcing patterns, a tenth of the reported speedup in multifactor productivity growth of the U.S. private business sector may have come from sourcing bias in the deflators for imports.

Keywords: offshoring, imports, price indexes, productivity, sourcing bias

JEL Classification: C43, E01, O47

Suggested Citation

Reinsdorf, Marshall and Yuskavage, Robert, Offshoring, Sourcing Substitution Bias, and the Measurement of Growth in U.S. Gross Domestic Product and Productivity (March 2018). Review of Income and Wealth, Vol. 64, Issue 1, pp. 127-146, 2018, Available at SSRN: https://ssrn.com/abstract=3124676 or http://dx.doi.org/10.1111/roiw.12263

Marshall Reinsdorf (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Robert Yuskavage

U.S. Department of Commerce - Bureau of Economic Analysis (BEA) ( email )

1441 L Street NW
Washington, DC 20910
United States

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