Financialisation and the dynamics of offshoring in the USA

Imports are linked to higher cost mark-ups and firm profits, and the gains from such non-competitive imports-the result of offshoring-are increasingly associated with the reinvestment of these higher profits. Our regression analysis of 35 US manufacturing and service industries over the period 1998-2006 supports aggregate and firm-level studies showing that offshoring is associated with a higher share of corporate profit in total value added. But the 'dynamic' gains from offshoring have not been fully realised because firms have purchased financial assets-especially share buybacks and higher dividend payments-to raise shareholder value, rather than investing in productive assets that raise productivity, growth, employment and income. Despite the corporate sector's contribution to national savings over the past decade, the offshoring-financialisation linkage reduces the capacity of non-financial corporations to act as a driver of the recovery from the economic crisis that emerged in 2008.