in favor of the developed economy. On the developing economy’s side, Li and Liu (2015) and Zi (2014) developed models in which LBE drives gains for the host countries. This relates to an older strand of literature that examined the effects of the North American Free Trade Area. Most prominently, Feenstra and Hanson (1996) showed that offshoring and host countries benefit from production fragmentation since the average skill intensity rises in both countries when the initial technology gap between the two is sufficiently large.

There are various ways of measuring offshoring, but in most cases, it is the share of imported inputs as percentage of total inputs, value added, or output. Since these measures are typically based on inputoutput tables, these types of studies are often performed at the industry-level. However, the focus was more on the labor market effects. Shifting the focus on productivity growth, Egger and others (2001) found that materials offshored to Eastern European countries had a significantly positive impact in 20 Austrian manufacturing industries.

In the 2000s, this stream of literature gained momentum when the focus shifted on services offshoring and its impact on TFP or labor productivity. Several studies at the sectoral level found evidence that services offshoring significantly increases productivity, while the effect of materials offshoring is smaller or insignificant: including Amiti and Wei (2006, 2009) for U.S. manufacturing between 1992 and 2000, Crino (2008) for nine EU countries between 1990 and 2004, Winkler (2010) for German manufacturing industries covering the period 1995–2006, and Michel and Rycx (2011) for Belgian manufacturing industries between 1995 and 2004. The last study also examined the impact of inter-industry spillover effects, but only found little evidence of it. Other studies, by contrast, only found significant productivity gains from materials offshoring, including Daveri and Jona-Lasinio (2008) for Italy between 1995 and 2003 and Ito and Tanaka (2010) for Japanese manufacturing over the period 1988–2004. Focusing on low-skilled workers, Egger and Egger (2006) found a U-shaped labor productivity effect from materials offshoring in the manufacturing sectors of 12 EU countries between 1993 and 1997.

A few studies use firm-level data. Görg and Hanley (2003) analyzed the impact of services offshoring on labor productivity for Ireland using plant-level data. The effect was positive in the electronics industry between 1990 and 1995. In a more recent plant-level study, Görg and others (2008) evaluated the productivity effects of materials and services offshoring for Irish manufacturing for the period 1990–1998, differentiating between exporting and non-exporting firms. They only found a significantly positive impact of services offshoring on TFP for exporting firms.

A recent strand of literature looked at the impact of trade liberalization on productivity through improved access to foreign inputs in developing countries. Amiti and Konings (2007) found, for Indonesia, that reducing tariffs on intermediate inputs leads to a productivity gain at least twice as high as gains from reducing output tariffs. Topalova and Khandelwal (2011) confirmed this result using firm-level data from India. In addition, Crino (2012) showed for 27 transition countries that importing inputs induces skills upgrading by facilitating the production of new goods, improvement of product quality, and, to a lesser extent, research and development (R&D) and technology adoption.

# **_FDI and Economic Upgrading within Sectors_**

Econometric studies of FDI spillovers usually investigate why the level or growth rate of productivity of domestic firms is higher in sectors where foreign firms are more prevalent. In the last decade, many researchers have econometrically examined the existence and direction of FDI-generated horizontal and vertical spillovers. Starting with the pioneering study by Caves (1974), early research on the topic examined the effects of horizontal spillovers using industry-level cross-sectional data, and generally found evidence for positive spillovers (see, for an overview of earlier studies, Görg and Strobl 2001). In later work, using panel data at the firm level, Haddad and Harrison (1993) found evidence for negative 6