Can we really trust offshoring indices?

This paper argues that offshoring indices often measure something different than what we think they are. Using data from input-output tables of 21 European countries from 1995 to 2006 we decompose an offshoring index, distinguishing between a domestic (structural change) and an international component (imported inputs ratio). Regarding offshoring of business services, a large share of the index variation is driven by the domestic component. This is even more pronounced for overall service offshoring. In the case of material offshoring, by contrast, the international component drives the main variation of the indices. Our results therefore show that, regarding (business) services, the typical calculation of offshoring indices tends to over estimate the role of the imported inputs component, neglecting the role played by structural changes in the economy.

► We argue that indices of offshoring may be measuring something quite different than what we think they are.
► We single out an international component and a component which is mainly due to structural change.
► A large part of the variation of the business offshoring index over time in Europe is driven by structural change.
► On the contrary, in the case of material offshoring the international component has substantially increased.
► Usual measures of business service offshoring neglect the role of structural changes, such as tertiarization.