The Effects of Offshoring to China: Reallocation, Employment and Productivity in Taiwan

We examine the extent to which outward FDI from Taiwan to mainland China has contributed to the rising unemployment rate in Taiwan. Further, it examines whether outward FDI has contributed to productivity growth in Taiwan, and the importance of linkages between sectors in determining these effects. We provide strong evidence that Taiwanese firms have increased their investments in China, and that this has lead to a reduction in employment in such sectors at home. Further, we show that these effects are also translated up the supply chain, such that outward FDI also leads to a reduction in employment upstream in the supply chain.