Offshoring Bias: The Effect of Import Price Mismeasurement on Manufacturing Productivity

Abstract

Paper prepared for " Measurement Issues Arising from the Growth of Globalization, " November 6-7, 2009, Washington, D.C. The analysis and conclusions set forth are those of the authors and do not indicate concurrence by other members of the research staff of the Board of Governors. We thank Jonathan Collins for research assistance. Over the past decade, emerging economies have become the new, low-cost suppliers of a wide range of products purchased by consumers and used as intermediate inputs by producers, with China—now the largest exporter to the United States— accounting for about a third of the growth in commodity imports over the last decade. 1 It is important to note that although the dollar value of imports into the United States shrank in 2009, the shift in the import composition towards developing economies, especially China, has accelerated during the current downturn as consumers and businesses have become increasingly price-sensitive. 2 This expansion in imports has resulted from a confluence of factors, such as rapid economic development, lower communication and transportation costs, and declining trade barriers. The surge in imports from developing countries occurred not singularly as a result of an increase in the volume of trade in existing products, but also has resulted from a striking expansion in the types of products being imported. The dramatic acceleration of imports from developing countries, we maintain, is imparting a bias to the official statistics reported by governmental agencies. 3 Indeed, much of the price decline associated with the entry of a new, foreign supplier and its expansion of market share is likely not captured in the import price 1 Expressed as a percent of GDP, imports rose by roughly 5 percentage points from 12½ percent of GDP in 1997 to 17½ percent in 2008, while exports as a share of GDP increased only marginally. In 2007 China became the largest exporter of commodities to the United States, surpassing Canada. 3 Michael Mandel makes note of this phenomenon in his June 3 rd , 2009 Business Week article, " Growth: Why the Stats are Misleading. " 2 statistics. The problem is analogous to the widely discussed problem of outlet substitution bias in the literature on the Consumer Price Index (CPI). 4 Just as the CPI fails to capture lower prices for consumers brought by the entry and expansion of big-box retailers like Wal-Mart, import price indexes and the intermediate input price indexes …

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Cite this paper

@inproceedings{Houseman2009OffshoringBT, title={Offshoring Bias: The Effect of Import Price Mismeasurement on Manufacturing Productivity}, author={Susan Houseman and Christopher Kurz and Paul Lengermann and Benjamin Mandel}, year={2009} }