International Outsourcing - Some Measurement Problems: An Empirical Analysis of Outsourcing Activities in Germany

During the last decades, international outsourcing has received huge attention in political discussion as well as in economic research. In empirical studies, outsourcing is measured in different ways. The several measurements are mostly calculated from different datasets, which often lead to diverse results and thus complicate comparative analysis. In Germany, the discussion about international outsourcing also provocatively known as "bazaar economy" has been given huge attention. In this debate, supporters and critics base their arguments upon different indices and differing results. This paper analyses the outsourcing activity in Germany in an empirical way. Several different indices have been calculated using one specific dataset for Germany, covering the years 1991 to 2000, making it possible to undertake a comparative analysis of international outsourcing. The results highlight parallels between the different indices and show in general, that international outsourcing increased in Germany during the period considered. The high skill industries of the manufacturing sector show the most intense outsourcing activity. The biggest increase during the period considered occurs in the service sector. As international outsourcing in the German economy increases, a decline of value added of production, which characterizes the bazaar effect, can be observed, although surprisingly not in the service industry.